![]() ![]() Net Annual Credit Sales ÷ Average Accounts Receivables = Accounts Receivables Turnoverįor example, Flo’s Flower Shop sells floral arrangements for corporate events and accepts credit. The formula for calculating the AR turnover rate for a one-year period looks like this: Average accounts receivables is calculated as the sum of starting and ending receivables over a set period of time (generally monthly, quarterly or annually), divided by two. Net sales is calculated as sales on credit - sales returns - sales allowances. It measures how efficiently and quickly a company converts its account receivables into cash within a given accounting period.Īccounts Receivable (AR) Turnover Ratio Formula & Calculation: The AR Turnover Ratio is calculated by dividing net sales by average account receivables. How to Calculate Accounts Receivable (AR) Turnover RatioĪlso known as the “receivable turnover” or “debtors turnover” ratio, the accounts receivable turnover ratio is an efficiency ratio - specifically an activity financial ratio - used in financial statement analysis. You can improve your ratio by being more effective in your billing efforts and improving your cash flow (opens in a new tab).As noted above business type and industry can impact your AR ratio so the score viewed on its own may not reflect the quality of your customer base or effectiveness of your retention efforts - it needs to be viewed in context.So it is good practice to compare yourself with others in your industry. ![]()
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