Receivables turnover ratio

Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Formula:

R e c e i v a b l e   T u r n o v e r   R a t i o = N e t   r e c e i v a b l e   s a l e s A v e r a g e   n e t   r e c e i v a b l e s

A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. While a low ratio implies the company is not making the timely collection of credit.