Meaning and calculation
Accounts receivable turnover compares sales and the average amount of customer receivables. For analyzing customer settlements, credit sales are preferable; when they are not disclosed, revenue is sometimes used as a proxy. The selected measure and the composition of receivables should be explained.
If annual credit sales are 900 thousand roubles and the average corresponding customer receivables are 150 thousand, the ratio is 6. But the same value for two companies does not imply the same customer quality: receivables may be fresh at one company and partly overdue at the other.
Limits of interpretation
The ratio does not measure the percentage of non-payers. An increase may result from faster payment, the sale of receivables or a change in the share of cash sales. A decline may be connected with longer contractual payment deferrals and not necessarily with a crisis. It is useful to study receivables ageing, loss allowances and concentration among major customers as well. Related reading: [working capital](/guides/working-capital/), [accounts receivable](/glossary/debitorskaya-zadolzhennost/) and [revenue](/glossary/vyruchka/).