Dr. Vance holds a Ph.D. in Business Administration and specializes in working capital management, corporate liquidity, and financial statement analysis for SMEs.
The **Receivables Turnover Ratio Calculator** (RTR) measures how effectively a company collects its debts from customers. This four-variable calculator solves for any missing input: **Net Credit Sales (NS)**, **Average Accounts Receivable (AAR)**, **Turnover Ratio (RTR)**, or **Days Sales Outstanding (DSO)**. **Input any three of the four core variables** to find the missing one.
Receivables Turnover Ratio Calculator
Receivables Turnover Ratio Formulas
The core relationship measures how many times per period the accounts receivable balance is converted into cash:
Formula Source: Investopedia: Accounts Receivable Turnover Ratio
Variables Explained
These four variables quantify the speed and efficiency of a company’s debt collection process:
- Net Credit Sales (NS): Revenue generated from sales made on credit, adjusted for any returns or allowances.
- Average Accounts Receivable (AAR): The average balance of funds owed by customers, typically calculated as (Beginning AR + Ending AR) / 2.
- Turnover Ratio (RTR): The final calculated ratio, representing the number of times the receivables balance is collected over the period.
- Days Sales Outstanding (DSO): The average number of days it takes a company to collect the money after a sale has been made.
Related Calculators
Analyze the broader components of a company’s working capital and liquidity using these related metrics:
- Inventory Turnover Ratio Calculator
- Working Capital Calculator
- Quick Ratio Calculator (Acid-Test)
- Cash Conversion Cycle Calculator
What is the Receivables Turnover Ratio (RTR)?
The **Receivables Turnover Ratio (RTR)** is a key liquidity and efficiency metric. It assesses a company’s effectiveness in extending credit and collecting debts. A high ratio suggests that a company is collecting its outstanding credit sales quickly, indicating efficient credit and collection management. A low ratio might suggest the company is taking too long to collect money, potentially due to loose credit policies or inefficient collections.
This ratio is closely tied to the **Days Sales Outstanding (DSO)** metric. A company can determine if its collection period (DSO) is in line with its stated credit terms. For example, if a company offers 30-day payment terms, a DSO significantly higher than 30 days is a warning sign that customers are paying late, potentially risking bad debt or cash flow problems.
How to Calculate RTR (Example)
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Gather Financial Data:
A wholesaler reports **Net Credit Sales (NS)** of $\mathbf{\$1,200,000}$ and **Average Accounts Receivable (AAR)** of $\mathbf{\$150,000}$.
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Calculate the RTR:
Divide Net Credit Sales by Average Accounts Receivable: $$ RTR = \frac{\$1,200,000}{\$150,000} $$
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Determine the Ratio:
The result is $\mathbf{8.0}$ times. The company collected its average accounts receivable 8 times during the period.
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Calculate DSO (for context):
The average days to collect (DSO) is $DSO = \frac{365}{8.0} = \mathbf{45.625}$ days.
Frequently Asked Questions (FAQ)
A: Generally, yes, as it indicates quick cash collection. However, a ratio that is *too* high might suggest the company is overly strict with its credit policy, potentially losing sales to competitors who offer more flexible terms.
A: Total Sales includes cash sales, which do not generate receivables. Using Net Credit Sales ensures the numerator (Sales) accurately corresponds to the denominator (Receivables) created by credit transactions.
A: DSO (Days Sales Outstanding) is the inverse of the RTR, adjusted for 365 days. They measure the same efficiency but one is expressed in ‘times’ per period (RTR) and the other in ‘days’ (DSO).
A: A decrease is usually caused by: 1) A slowdown in collections (customers taking longer to pay), 2) A loosening of credit policies, or 3) A higher incidence of uncollectible accounts (bad debt).