Accounts Receivable Turnover Ratio

One of the activity ratios in business is the receivables turnover ratio or rate. This ratio measures the frequency of collecting the entire balance of accounts receivable during a standard accounting year. The ideal turns rate is twelve with a higher value indicating an aggressive collection process. A lower value is a warning about accounts receivable management.

For the reader to fully understand the accounts receivable turnover ratio you must first learn how to calculate the turnover rate. Once there is an understanding of the formula; proper application is necessary to appreciate the value this turnover ratio can generate. Finally, this article will provide insight into evaluating the ratio when reading financial reports.

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