The Accounts Receivable Turnover Ratio is an important financial metric that measures a company’s ability to manage its accounts receivable. This ratio assesses the average number of times that a company has collected its accounts receivable during any given period. It also provides insight into the health and efficiency of a company’s credit and collection policies. To calculate this ratio, divide the total sales by the average accounts receivable during the same period. A higher turnover ratio indicates that a company is more efficient at collecting its receivables in a timely manner. Conversely, a lower turnover ratio indicates that a company could be having difficulty in collecting its receivables due to either the length of time customers are taking to pay or excess bad debts.
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