Accounts Receivable Turnover Ratio

This video shows how to calculate the Accounts Receivable Turnover Ratio.
The Accounts Receivable Turnover Ratio is calculated by dividing a company's Net Credit Sales for the period by its average Net Accounts Receivable (you compute the average Net Accounts Receivable by adding the ending balance of Net Accounts Receivable to the beginning balance of Net Accounts Receivable and dividing the amount by two).
The Accounts Receivable Turnover Ratio tells you how many times the company collected its receivables during the period. A higher Accounts Receivable Turnover Ratio is considered a good thing because it means the company is doing a good job collecting its credit sales. However, what is a "good" ratio varies by industry, so you should compare a company's Accounts Receivable Turnover Ratio to the ratios of the firm's competitors (and also look at the trend in the ratio over time).
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[@Omar123ABC]

I use your videos to gain clarity in my MBA classes. Thank you for the great content

[@Edspira]

Happy to help!

[@taylorcarter8383]

Same! 😂 Appreciate these very, very much.

[@safwannttentater739]

this don't make sense, credit sales are sales where we didn't receive cash and accounts receivable also represents the money we didn't receive from credit sales.. how does diving one by the other shows the collection time??

[@abrarahmad6370]

Yeah, I think you divide '365' (days) by 'Receivable Turnover ratio' = Average collection period. For the example in the video its 365/5 = 73, - meaning after each 73 days the company collects a receivable from a client per year. Let me know if my assesment is right.

[@safwannttentater739]

@@abrarahmad6370 Yes you are right my confusion was I thought credit sales and account receivable were same thing, but later I realized they are same thing but both are recorded differently, credit sales is recorded as a constant amount but account receivable changes (gets lower) as the company gets cash.

[@letuong3311]

@@safwannttentater739 I have the same thoughts like you, so where we can take the credit sales on the finance ?, thank you

[@suwuhuang2151]

Love the work you put in.

[@Edspira]

I appreciate that!

[@kierstenmonroe1439]

what if you are not given the amount of cash sales? that is not included on the financial statements

[@kizzeljoymorillo1455]

what if the net credit sales is not on the financial statement? Love from Philippines

[@timwestchester9557]

I don't see what this has to do with collecting money. A/R is recorded when people owe you money - the payment is outstanding. I understand that A/R goes down once they pay, but taking the average just seems to me like the average amount of money that is owed to you throughout the year.

[@Melissa-kg1ux]

this indicator makes no sense for me

[@ArrowedDragon]

super helpful and easy to understand, thank you

[@Nick_88888]

Very good, keep it going !

[@Edspira]

Thank you!

[@kurpac321]

Thank you sir, you're helping me earn my degree

[@abrarahmad6370]

You wanna be an accountant mister?

[@Sarman605]

Thanks for the info!

[@juanconejo2166]

Keep in mind that net credit sales are only shown for internal members of the company. Net credit sales will never be shown to external analysts. If you want to calculate the accounts receivable turnover ratio you must use revenue. Keep in mind that revenue is also called sales. Also revenue is found in the income statement.

[@yusufabdirahmanjama8720]

Please how can I differentiate credit and receivables thanks

[@ellydavis2066]

All I seem to be able to find on accounts is revenue, no reference to credit sales. I take it you can't use 'revenue' instead?

[@antoinealez12]

what if you don't have the beginning and the ending?

[@Lambreezy15]

exactly

[@cheyenneb4263]

i have this same problem!!! i know this comment is old but did you ever find a solution?

[@antoinealez12]

@@cheyenneb4263 ah man I wish I could help you. but i barely remember. I've since graduated and far removed from this

[@shujiezhang3494]

Good.

[@Sriver14]

Can anyone explain how to find Receivable ratio if you are not given an income statement? All examples I try to find always use the easy way, assuming we are given credit sales.

[@juanconejo2166]

Net credit sales are only shown to internal members of a business. If you want to calculate the accounts receivable turnover ratio you must use revenue. Net credit sales are never shown to external analyst. In other words the calculation will be as follows: revenue/net receivables

[@Sriver14]

@@juanconejo2166 Thank you for your help! I figured it out but thank you for responding.

[@sarahmohammad7558]

so is it bad that their account receivable turnover is going down ?

[@AgentJu14]

Yessir it's bad that it's going down.

[@sarahmohammad7558]

thank you :)

[@AgentJu14]

@@sarahmohammad7558 you're most welcome😊

[@abrarahmad6370]

Well it depends. Maybe they changed their policy and stopped creditting a lot from before and started making direct sales or something or they still make money through credit but they charge more from each customer. Or maybe its just the customers that are bad. Let me know if I'm right or wrong.

[@MyFinancialFocus]

The smaller the accounts receivable balance the better