1. What is Accounts Receivable Turnover Ratio?

The Accounts Receivable (AR) Turnover Ratio measures how efficiently a company collects credit sales from customers. It shows how many times a business can turn its accounts receivable into cash during a period.

2. How Does the Calculator Work?

The calculator uses the AR Turnover formula:

Where:

• \( Net\ Credit\ Sales \) — Total credit sales minus returns (in $)
• \( Average\ Accounts\ Receivable \) — (Beginning AR + Ending AR) / 2 (in $)

Explanation: A higher ratio indicates more efficient collection of receivables, while a lower ratio may suggest collection problems.

3. Importance of AR Turnover Ratio

Details: This ratio helps businesses assess their credit and collection policies, cash flow management, and overall financial health. It's particularly important for companies with significant credit sales.

4. Using the Calculator

Tips: Enter net credit sales and average accounts receivable in dollars. Both values must be positive numbers. The result is a unitless ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good AR turnover ratio?
A: It varies by industry, but generally higher is better. A ratio of 10 means receivables are collected about every 36.5 days (365/10).

Q2: How do you calculate average accounts receivable?
A: Add the beginning and ending accounts receivable balances for the period and divide by 2.

Q3: What if my ratio is too low?
A: A low ratio may indicate poor collection processes, lax credit policies, or customers with financial difficulties.

Q4: Should I include cash sales in net credit sales?
A: No, only credit sales should be included as cash sales don't create accounts receivable.

Q5: How often should I calculate this ratio?
A: Most businesses calculate it quarterly or annually, but companies with significant receivables may monitor it monthly.