1. What is Accounts Receivable Turnover?

Accounts Receivable Turnover is a financial ratio that measures how efficiently a company collects credit sales from customers. It shows how many times a company collects its average accounts receivable balance during a period.

2. How the Calculator Works

The calculator uses the AR Turnover formula:

Where:

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

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

3. Importance of AR Turnover

Details: This ratio helps businesses assess their credit policies, collection efficiency, and cash flow management. It's crucial for liquidity analysis and working capital management.

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. Compare with industry averages for meaningful analysis.

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

Q3: What does a low AR turnover indicate?
A: It may suggest poor collection processes, lenient credit policies, or customers with financial difficulties.

Q4: Can AR turnover be too high?
A: Extremely high ratios might indicate overly strict credit policies that could be limiting sales.

Q5: How often should AR turnover be calculated?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring.