What does the accounts receivable turnover ratio measure?

The accounts receivable turnover ratio measures how efficiently a company collects payments from its customers for credit sales. This ratio indicates the number of times, on average, that a company collects its accounts receivable during a specific period, usually a year. A higher turnover ratio suggests that the company is effective at managing its receivables and converting them into cash quickly, reflecting good credit management and customer payment behavior.

This ratio is an important metric for assessing the financial health of a business, particularly in terms of cash flow management. It helps stakeholders understand how quickly the company can expect to turn its receivables into actual cash, which is essential for funding operations, paying debts, and making new investments.