certain time frame.
Net Sales: This is a company's total revenue from selling products or services
during a given time period less returns, allowances, and discounts.
Average Accounts Receivable: This is the typical sum of money that
customers who haven't paid the company yet owe them over the course of a
year or a quarter.
Meaning: Receivable turnover is a measure of a company's ability to control
credit and collect past-due invoices. A low percentage could be an indication
of problems with credit policies or late payments, while a high ratio suggests
effective collection operations.
Use: Receivable turnover benefits companies in a number of ways:
It has an impact on cash flow. A larger ratio results in faster cash collection,
which can be used for a variety of operational requirements.
Evaluation of Credit Policies: It aids in determining the viability of credit
policies. If the turnover is too low, it can mean that the business is giving
credit to consumers who pose a credit risk.
Aging Analysis: It helps to discover consumers who are slow to pay. By
looking at the turnover, a business can target its collection efforts at
customers that owe money.
In conclusion, inventory turnover and receivable turnover are crucial financial
indicators that show how well a business operates, manages its cash flow,
and makes decisions about its inventory and credit management (Weygandt
Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th
ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons,
Inc. p. 802.