Technicals Stability Returns

Understanding Account Receivable Turnover Ratios

Account Receivable Turnover Ratio measures the number of times a company collects its receivable. This ratio indicates how well the company accumulates its due receivables.

Higher Account Receivable Turnover Ratio indicates that a company receives payments more quickly, and a low ratio indicates that the company is receiving payments slowly.

In general, a higher ratio of receivables turnover is considered good, but it depends on the industry as it changes from one industry to another.

The formula for calculating Account Receivable Turnover Ratio

Account Receivable Turnover Ratio

Example: For the financial year, Maruti Suzuki India reported net sales as Rs. 70372 Cr., and Average Account Receivable as Rs. 2709.50 Cr.,
The value as per the formula (Net Sales / Average Account Receivable) is calculated as (70372 / 2709.50) = 26.02.