Accounts Receivable Ratio
The accounts receivable ratio is used to measure how effectively a company is extending credit and collecting debt.
Accounts receivable ratio = (Net Sales) / (Average Account Recievables)
This number allows you to look at how well a company is able to collect on its sales. A low ratio can indicate a company is having trouble collecting. They either need to re-organize the way they run their business or they are getting bad debts, either way a number too low can be a bad sign. A high number can indicate a firm has a strict credit policy. Normally the higher the number the better, if the number is too high however it could be a sign that the company is turning away sales.This ratio is best used alongside other ratios to tell how strong a given company is. Other Similar Ratios Accounts Payable Turnover Ratio – A Ratio that helps you tell how long it will take a company to pay off its suppliers. Gordon Growth Model - Looks at The Future Growth of a Stock’s Dividend. Cash Flow Ratio - Uses a company’s Cash Flow to decide how likely it is to be able to pay off it’s debts. Return on Capital Employed – This ratio looks at a company’s investments and what that company managed to do with their investments. Debt to Equity Ratio – This ratio compares the amount of debt which a company has with it’s shareholder equity. Go From the Accounts Receivable Ratio to Financial Ratios |
