Accounts Receivable Turnover Ratio
Accounts receivable turnover ratio also known as debtors’ turnover ratio, is a financial ratio which aids in measuring the company’s ability and effectiveness in collecting the money owed by clients. The ratio simply helps the business in identifying the speed at which it collects the money which it is to receive from its customers. If a company’s receivable turnover for a specific financial year is 20, this means that company recovered the amount due from its customers 20 times during that specific financial year.
The formula used for debtors’ turnover ratio is as follows:
Debtors’ turnover ratio = Net annual credit sales ÷ Average accounts receivable