![]() ![]() Mark’s Bike Shop sells bicycles and biking gear. The company can improve their turnover ratio by improving their customer support and product quality which will reduce return rates.Īccounts Receivable Turnover Ratio Formula Video Example 1Īccounts Receivable Turnover Ratio Formula Written Example 1 ![]() ![]() Excessive returns will lower net credit sales which in turn lowers the turnover ratio. For example, the business may have problems with customer service or product quality which is resulting in excessive returns. A low ratio also suggests that a business may need to collect on old accounts receivable that may be tying up working capital.Ī low accounts receivable turnover ratio does not necessarily mean that a business is having problems with collecting or has too lenient of a credit policy. The higher the account receivables turnover ratio is, the more likely that the business has an aggressive collections policy and extends credit cautiously, while a lower ratio suggests that the business can improve its collections department or is extending credit too frequently. Net Credit Sales (for a period of time) / the Accounts Receivable Average (for the same period of time) = Accounts Receivable Turnover RatioĪccounts Receivable Turnover Ratio Video Tutorial With Examples The period of time can be adjusted as necessary, for instance the accounts receivable turnover ratio is often calculated on a month by month basis for comparison or statistical purposes.Īccounts Receivable Turnover Ratio Formula The account receivables turnover ratio determines how often a business collects its accounts receivable throughout a period of time, usually one year. ![]()
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