What is the ratio of receivables turnover?

Receipt ratio is a tool for a financial analysis used to measure the ability of the company to collect outstanding account balances. This ratio determines how quickly the company collects outstanding cash balances from its customers during the accounting period. The highly calculated value from the ratio of receivables turn indicates that the company works mainly through cash sales to customers. The high value can also indicate how a company has a strong business policy for the collection of outstanding customer balances. Excellent balances are held in the magazine of receivables from the Company's accounts. While the balance of high -account receivables can be considered a good thing, companies that cannot collect outstanding balances in time, may encounter cash flow problems. In addition, it can constantly offer the sale of account to customers who have previous outstanding balances, also create difficult situations in cash flows.Owner of the company or manager check the balance balance in time. This financial ratio is commonly reviewed every month or annually to determine the effectiveness of the company's cash collections during the accounting period.

The classic formula of receivable turnover ratio is a net sale of the loan divided by an average net receivable. Net Credit Sales is the amount of sales sales less discounts, revenues or other contributions published in the magazines for receivables. The average net receivable accounts are the total outstanding claim of the company that is reduced for expenditures on the negligent debts. The cost of Bad Debts is a percentage of outstanding receivables that the company estimates that it cannot collect and eventually write off. The cost of careless debts often occurs when companies expand the loan to customers with poor loan or inability to repay the large outstanding balancesávek.

As an example, if the company has $ 5,525,000 in the US (USD) in net sales and $ 500,000 in net receivables at the end of the year, the company would have a 9.5 turnover ratio. This number shows that the company has collected nine and a half times during the calendar year.

Companies often compare the calculation of the ratio to a competitive company or industrial standard. This comparison can help owners or managers understand how well their company stacks the ratio of turnover of other companies. Owners and managers may also have to improve the company's collection procedures to improve this number. It is important to note that this number simply represents an average calculation for assessing receivables turnover. The use of average data in business or financial conditions can distort the actual operating performance.