Business glossary
Receivables turnover ratio
Net credit sales divided by average accounts receivable for a period.
Example
Net credit sales of $120,000 and average receivables of $20,000 produce a turnover ratio of six for that period. Average receivables can be calculated consistently from opening and closing balances.
How it differs from related terms
Turnover measures collection relative to the receivable balance. DSO expresses a related result in days: period days divided by turnover when the inputs match. Do not mix annual sales with an unrelated monthly receivables figure.
Frequently asked questions
What is an example of receivables turnover ratio?
Net credit sales of $120,000 and average receivables of $20,000 produce a turnover ratio of six for that period. Average receivables can be calculated consistently from opening and closing balances.
How should receivables turnover ratio be interpreted?
Turnover measures collection relative to the receivable balance. DSO expresses a related result in days: period days divided by turnover when the inputs match. Do not mix annual sales with an unrelated monthly receivables figure.