![]() ![]() A high ratio is preferable since it implies that the company’s accounts receivables are collected on a regular and efficient basis. ![]() The accounts receivable turnover ratio is a financial and operational efficiency statistic that measures a company’s financial and operational performance. Recommended Read: Portfolio Turnover Ratio Interpretation Accounts Receivable Turnover Ratio High Accounts Receivable Turnover Ratio Rs 4,20,000Rs 5,00,000 – Rs 60,000 – Rs 20,000Īccounts Receivable Turnover RatioNet Credit Sales / Average Accounts Receivable ![]() Net Credit SalesTotal Credit Sales – Sales Returns – Discounts The following is an example of how to calculate the accounts receivable ratio: ParticularsĪverage Accounts Receivable(Accounts Receivable at the Beginning of the Year + Accounts Receivable at the End of the Year) / 2 To calculate the accounts receivable turnover ratio, you need to first calculate the net sales and average accounts receivable. Net Sales = Total Credit Sales – Sales Returns – Sales Discountsĭebtors or Accounts Receivable Turnover in Days = (1 / Debtors or Accounts Receivable Turnover Ratio) * 365 How to Calculate Accounts Receivable Turnover Ratio? The formula for the Accounts Receivable Turnover Ratio is:Īccounts Receivable Turnover Ratio – Net Credit Sales / Average Accounts ReceivableĪverage Accounts Receivable = (Accounts Receivable at the Beginning of the Year + Accounts Receivable at the End of the Year) / 2 Here we have discussed the introduction, examples, advantages, and disadvantages of the ART ratio along with a downloadable excel template.Child Education Accounts Receivable Turnover Ratio Formula This is a guide to the Accounts Receivable Turnover Ratio. So, the accounts receivable turnover ratio is a measure of how quickly a company is able to collect the receivable owed by its clients. The use of entire sales in place credit sales results in an inflated ratio that fails to represent the actual collection management of a company.In the case of seasonal businesses with a peak period in the middle of the year, the ratio may not reflect the true picture as the calculation is based on accounting figures at the start and at the end of the year.It indicates the quality of customers that the company is dealing with.It can help in understanding the credit policy of a company and its bargaining power among its customers.Source: Walmart Annual Reports (Investor Relations) Advantages and Disadvantages of ART Ratioīelow are some pros and cons of the ART ratio, which are as follows – Advantages collected its receivable 86.6 times during 2018, which is in line with its business which involves relatively low accounts receivable. Average Receivable = ($5,835 million + $5,614 million) / 2Īccounts Receivable Turnover Ratio = Net Sales / Average Receivable.Based on the given information, calculate the accounts receivable turnover ratio for Apple Inc. During the same period, the opening accounts receivable (net) and the closing accounts receivable (net) stood at $17,874 million and $23,186 million, respectively. The company reported net sales of $265,595 million for the year 2018. Let us take Apple Inc.’s example to illustrate the ART Ratio concept. Therefore, the company was able to collect its receivable 2.94 times during the year. The formula used to calculate the ratio is as follows:Īccounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable Average Accounts Receivable = $85 million.Average Accounts Receivable = ($80 million + $90 million) / 2.The formula used to calculate the average account receivable is as follows:Īverage Accounts Receivable = (Opening Accounts Receivable + Closing Accounts Receivable)/2 The following information is made available from the latest annual report: Let us take the example of a company engaged in trading various wholesale grocery items in California. You can download this Accounts Receivable Turnover Ratio Excel Template here – Accounts Receivable Turnover Ratio Excel Template Example – #1 ![]()
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