This video shows how to calculate the Accounts Receivable Turnover Ratio.

The Accounts Receivable Turnover Ratio is calculated by dividing a company’s Net Credit Sales for the period by its average Net Accounts Receivable (you compute the average Net Accounts Receivable by adding the ending balance of Net Accounts Receivable to the beginning balance of Net Accounts Receivable and dividing the amount by two).

The Accounts Receivable Turnover Ratio tells you how many times the company collected its receivables during the period. A higher Accounts Receivable Turnover Ratio is considered a good thing because it means the company is doing a good job collecting its credit sales. However, what is a “good” ratio varies by industry, so you should compare a company’s Accounts Receivable Turnover Ratio to the ratios of the firm’s competitors (and also look at the trend in the ratio over time).