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Most companies provide their net credit sales in their income statement. The receivable turnover ratio uses net credit sales instead of cash sales, as cash sales do not lead to any receivables. Net credit sales = Gross credit sales - Returns These are the sales after deducting the value of any returns or refunds, and the formula for calculating it is: Net credit sales is the value of the cash the company collects at a later date. In this formula, there are two main elements, including: Net credit sales The formula for the receivable turnover ratio is:Īccounts receivable turnover ratio = Net credit sales / Average accounts receivable Related: What Is Working Capital Management? (Importance And Ratios) Accounts Receivable Turnover Ratio Formula Companies that offer credit services or products for which the customers can pay later may use longer durations to calculate their receivable turnover ratio. It is essential to note that companies may collect the outstanding accounts receivable at different times. Besides helping compare how well different companies manage their clients and finances, this ratio can help businesses understand their competition, improve internal collection or renewal processes and enable investors to identify potential investment opportunities. The receivable turnover ratio is suitable for assessing a company's effectiveness in managing its line of credit and outstanding balance. To use the revenue companies generate from credit purchases, they collect accounts receivables at regular intervals. The accounts receivable turnover ratio refers to the efficiency of a company in collecting its outstanding accounts receivable amount. View more jobs on Indeed View More What Is The Accounts Receivable Turnover Ratio?
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