Receivables Turnover Ratio Calculator

Analyze your accounts receivable efficiency and DSO

This calculator helps you determine how efficiently your business collects its receivables. Enter your net credit sales and average accounts receivable to get instant results.

Examples

See how the Receivables Turnover Ratio Calculator works in real scenarios.

Standard Yearly Calculation

Standard Yearly Calculation

A company has $50,000 in net credit sales, $10,000 in accounts receivable at the start, and $12,000 at the end of the year.

Net Credit Sales: $50,000.00

Accounts Receivable at Start: $10,000.00

Accounts Receivable at End: $12,000.00

Period (Days): 365

Currency: USD

Quarterly Calculation

Quarterly Calculation

A business records $25,000 in net credit sales, $5,000 in receivables at the start, and $6,000 at the end of a 90-day quarter.

Net Credit Sales: $25,000.00

Accounts Receivable at Start: $5,000.00

Accounts Receivable at End: $6,000.00

Period (Days): 90

Currency: USD

Different Currency Example

Different Currency Example

A company in Europe has €40,000 in net credit sales, €8,000 in receivables at the start, and €7,000 at the end of the year.

Net Credit Sales: $40,000.00

Accounts Receivable at Start: $8,000.00

Accounts Receivable at End: $7,000.00

Period (Days): 365

Currency: EUR

Custom Period Calculation

Custom Period Calculation

A business has $60,000 in net credit sales, $15,000 in receivables at the start, and $13,000 at the end of a 180-day period.

Net Credit Sales: $60,000.00

Accounts Receivable at Start: $15,000.00

Accounts Receivable at End: $13,000.00

Period (Days): 180

Currency: USD

Other Titles
Understanding Receivables Turnover Ratio: A Comprehensive Guide
Master the art of managing your accounts receivable with this in-depth resource.

What is Receivables Turnover Ratio?

  • Definition and Importance
  • Key Formula
  • Relation to DSO
The receivables turnover ratio measures how efficiently a company collects its accounts receivable. A higher ratio indicates faster collection and better liquidity.
Formula
Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable
Days Sales Outstanding (DSO) = Period Days / Receivables Turnover Ratio

Calculation Examples

  • If a company has $50,000 in net credit sales and an average accounts receivable of $11,000, the ratio is 4.55.
  • If the period is 365 days, DSO = 365 / 4.55 ≈ 80 days.

Step-by-Step Guide to Using the Calculator

  • Input Your Data
  • Review the Results
  • Interpret the Outcome
Enter your net credit sales, accounts receivable at the start and end of the period, and the number of days in the period.
The calculator will instantly provide your receivables turnover ratio and DSO.
Use these results to assess your company's collection efficiency.

How to Use

  • Entering $25,000, $5,000, $6,000, and 90 days yields a ratio of 4.35 and DSO of 20.7 days.
  • A lower DSO means faster collection of receivables.

Real-World Applications of Receivables Turnover Ratio

  • Business Cash Flow Management
  • Credit Policy Evaluation
  • Financial Health Assessment
Businesses use this ratio to monitor and improve their cash flow by identifying collection issues early.
It helps in evaluating the effectiveness of credit policies and terms offered to customers.
Investors and analysts use it to assess a company's financial health and operational efficiency.

Business Insights

  • A company with a low turnover ratio may need to tighten its credit policy.
  • A high ratio can indicate efficient receivables management.

Common Misconceptions and Correct Methods

  • Misinterpreting High Ratios
  • Ignoring Seasonal Variations
  • Overlooking Credit Sales Only
A very high ratio isn't always positive; it may mean overly strict credit terms that deter customers.
Seasonal businesses should compare ratios across similar periods, not just annually.
Only credit sales should be included, not total sales.

Best Practices

  • Comparing ratios across different industries can be misleading.
  • Including cash sales inflates the ratio inaccurately.

Mathematical Derivation and Examples

  • Calculating Average Accounts Receivable
  • Stepwise Calculation
  • Practical Example
Step 1: Calculate Average Accounts Receivable
Average Accounts Receivable = (Start + End) / 2
Step 2: Calculate Receivables Turnover Ratio
Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable
Step 3: Calculate DSO
DSO = Period Days / Receivables Turnover Ratio

Stepwise Example

  • Given $60,000 net credit sales, $15,000 start, $13,000 end, and 180 days: Average = $14,000; Ratio = 4.29; DSO = 41.96 days.
  • Always use consistent currency and period units.