Receivables Turnover Ratio
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. Receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Formula:
Some companies' reports will only show sales - this can affect the ratio depending on the size of cash sales.
Investopedia Commentary
By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient.
A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit not earning interest for the firm.
Related Links
Ratio Analysis Tutorial
Measuring Company Efficiency
Advanced Financial Statement Analysis
See also: Accounts Payable, Accounts Receivable, Activity Ratio, Fundamental Analysis, Income Statement, Net Receivables