Accounts Receivable Turnover
Accounts Receivable Turnover = Net Sales/Average Net Account Receivables
Accounts receivable turnover ratio measures the effectiveness of a company in extending credit and collecting debts. It is an activity ratio that measures how efficiently a firm uses its assets.
Year
ABC
DEF
GHI
Industry Average
2012
31, 053/988 = 31.43
16,842/1,282.5 = 13.13
5,160/618 = 8.35
17.64
2013
32,722/1,042 = 31.4
18,657/937 = 19.91
5,858/494 = 11.86
21.06
In this table you see the accounts receivable turnovers from the 3 companies in year 2012 and 2013. For Company ABC, accounts receivable turnover in 2012 is 31.43 and 31.4 in 2013 with only a 0.03 change. As compared to companies DEF and GHI, company ABC has a much higher accounts receivable turnover. It suggests that when a company has a higher turnover, a company is operating either on cash basis or its credit collection side of the company is efficient. Company DEF is in the middle, its account receivables turnover in 2012 is 13.13 but showed an increase in 2013 where turnover is 19.91. The lowest accounts receivable turnover is company GHI in year 2012, where it had 8.35, and increased to 11.86 in 2013. Given that GHI has lower accounts receivable turnover, the company need to re-assess its credit policies to ensure timely collection of credit sales or maybe the credit policy is too tight that can result to loss of sales.
On the contrary, the industry average is way lower than Company ABC’s accounts receivable turnover, it’s around 56% - 67% higher than the normal level of account receivable turnover for the industry in both years. With very high values, this ratio may not be very favorable too. However, between the 3 companies, Company ABC, is still much better than the other when it comes to the account receivables turnover ratio because in both years, it is the only Company ABC that surpassed the industry average.
Average Net Receivables = Beginning Net Receivables + End Net Receivables/2
Year
ABC
DEF
GHI
2012
1976/2 =
Accounts receivable turnover ratio measures the effectiveness of a company in extending credit and collecting debts. It is an activity ratio that measures how efficiently a firm uses its assets.
Year
ABC
DEF
GHI
Industry Average
2012
31, 053/988 = 31.43
16,842/1,282.5 = 13.13
5,160/618 = 8.35
17.64
2013
32,722/1,042 = 31.4
18,657/937 = 19.91
5,858/494 = 11.86
21.06
In this table you see the accounts receivable turnovers from the 3 companies in year 2012 and 2013. For Company ABC, accounts receivable turnover in 2012 is 31.43 and 31.4 in 2013 with only a 0.03 change. As compared to companies DEF and GHI, company ABC has a much higher accounts receivable turnover. It suggests that when a company has a higher turnover, a company is operating either on cash basis or its credit collection side of the company is efficient. Company DEF is in the middle, its account receivables turnover in 2012 is 13.13 but showed an increase in 2013 where turnover is 19.91. The lowest accounts receivable turnover is company GHI in year 2012, where it had 8.35, and increased to 11.86 in 2013. Given that GHI has lower accounts receivable turnover, the company need to re-assess its credit policies to ensure timely collection of credit sales or maybe the credit policy is too tight that can result to loss of sales.
On the contrary, the industry average is way lower than Company ABC’s accounts receivable turnover, it’s around 56% - 67% higher than the normal level of account receivable turnover for the industry in both years. With very high values, this ratio may not be very favorable too. However, between the 3 companies, Company ABC, is still much better than the other when it comes to the account receivables turnover ratio because in both years, it is the only Company ABC that surpassed the industry average.
Average Net Receivables = Beginning Net Receivables + End Net Receivables/2
Year
ABC
DEF
GHI
2012
1976/2 =