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Receivable turnover ratio

Receivable turnover

Description

Receivable turnover is a ratio that shows how effectively the company collects its’ funds from its’ customers for sold on credit goods or services. This ratio indicates how many times, account receivables (mostly customer’s debts) are collected. As a rule this ratio is calculated for a period of one year, but other periods are also possible. Data to calculate this ratio is collected from balance sheet and income statement.

Norms and limitations

Low value of this ratio shows that company’s debts are collected slowly. Higher value indicates more effective credit policy.

However in general there is no norm for the receivables turnover ratio, as it depends on the industry. A very high value of receivable turnover ratio shows that the company mainly works on cash on delivery.

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