Receivables Turnover Ratio financial definition of Receivables Turnover Ratio. Receivables Turnover Ratio finance term by the Free Online Dictionary.

Receivables turnover ratio

Total operating revenues divided by average receivables. Used to measure how effectively a firm is managing its accounts receivable.

Accounts Receivable Turnover

The average amount of time it takes for a business to collect on its accounts receivable. This is calculated by multiplying the amount in accounts receivable by the number of days in a given period and dividing into the total amount of credit sales. Accounts receivable turnover is a way to determine how a business' credit risk compares to that of its competitors.

Receivables Turnover Ratio

What Does Receivables Turnover Ratio Mean?

An accounting measure used to quantify a firm's effectiveness in extending credit and collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. It is calculated as shown here:

Some companies' reports will only show sales—this can affect the ratio depending on the size of cash sales.

Investopedia explains Receivables Turnover Ratio

By holding accounts receivable on their books, companies are indirectly extending interest-free loans to their clients who haven't paid for their goods yet. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable are efficient. A low ratio implies that the company should reassess its credit policies to ensure the timely collection of accounts receivable.

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