What is Rec Turn?
Measures how efficiently a company collects its receivables (money owed by customers).
Think of it like this
Like measuring how quickly your friends pay you back after lending them money.
Formula
Receivables Turnover = Revenue ÷ Average Accounts Receivable- Revenue: Net credit sales (or total revenue)
- Average A/R: (Beginning + Ending Receivables) ÷ 2
Why it matters
- Shows effectiveness of credit and collection
- Higher = faster collection of payments
- Affects cash flow and working capital
- Can indicate customer financial health
What's a good value?
< 5x
Low
Slow collection, potential bad debts
5-10x
Moderate
Average collection efficiency
10-15x
Good
Efficient collection practices
> 15x
Excellent
Very fast collection or mostly cash sales
Real-world example
Declining receivables turnover may signal customers are struggling to pay or looser credit terms.
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