Enter the total net credit sales and average accounts receivable over the same time period to determine the accounts receivable turnover ratio.
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Accounts Receivable Turnover Ratio Formula
The following equation can be used to calculate the accounts receivable turnover ratio.
ART Ratio = NCS / AR
- Where ART is the accounts receivable turnover ratio
- NCS is the net credit sales
- AR is the average accounts receivable
Account Receivable Turnover Ratio Definition
An accounts receivable turnover ratio is defined as the ratio of net credit sales to average accounts receivable.
Accounts Receivable Turnover Ratio Example
How to calculate accounts receivable turnover ratio?
- First, determine the total net credit sales.
In the time period being analyzed (most often a year-long period) calculate the total net credit sales.
- Next, determine AAR.
Determine the average accounts receivable over the same time period.
- Finally, calculate the accounts receivable turnover ratio.
Calculate the ART Ratio using the information from steps 1 and 2 along with the formula presented above.
An accounts receivable turnover ratio is a ratio of the total net sales to the accounts receivable. In other words, this ratio is a measure of how efficiently the company is collecting revenue.
Net credit sales are all sales of goods where the revenue or payment is collected at a later date.