Accounts Receivable Turnover Ratio

Definition

The Accounts Receivable Turnover Ratio (ARTR) is a financial metric used to measure the efficiency of a company's accounts receivable collection process. It is calculated by dividing the total net credit sales for a period by the average accounts receivable balance for the same period.

The ARTR is a key indicator of a company's ability to collect payments from its customers in a timely manner. It is also an important measure of the company�s liquidity and cash flow.

Example

For example, if a company has total net credit sales of $1,000,000 and an average accounts receivable balance of $200,000, the ARTR would be 5. This means that the company is collecting payments from its customers five times per year.

Why it Matters

The ARTR is an important metric for enterprise companies because it provides insight into the effectiveness of their accounts receivable collection process. A high ARTR indicates that the company is collecting payments from its customers quickly and efficiently, while a low ARTR indicates that the company is having difficulty collecting payments from its customers.

The ARTR is also an important measure of the company's liquidity and cash flow. A high ARTR indicates that the company is generating cash quickly, while a low ARTR indicates that the company is having difficulty generating cash.

For enterprise companies, it is important to monitor the ARTR on a regular basis to ensure that the company is collecting payments from its customers in a timely manner and generating sufficient cash flow.