Analysis of receivables turnover I. Introduction

V. Methods of Calculating Receivables Turnover
Methods of calculating receivables turnover can vary depending on the organization and the specific 
information available. One commonly used method is the formula for accounts receivable turnover ratio, 
which is calculated by dividing net credit sales by average accounts receivable. Net credit sales can be 
obtained by subtracting cash sales and sales returns from net sales. Average accounts receivable can be 
calculated by adding the beginning and ending accounts receivable balances and dividing by 2. Another 
method is the formula for days sales outstanding (DSO), which calculates the average number of days it 
takes for a company to collect its accounts receivable. DSO can be calculated by dividing 365 days by the 
accounts receivable turnover ratio. Both of these methods provide valuable insights into the efficiency of 
a company's receivables management and collection processes (Bragg, 2012).
VI. Interpretation and Analysis of Receivables Turnover
Interpretation and analysis of receivables turnover is crucial in evaluating a company's efficiency in 
managing its accounts receivable. One way to interpret receivables turnover is by comparing it to industry 
standards or benchmark ratios. This can provide insight into whether the company is performing above 
or below average in terms of its ability to collect cash from customers. Another interpretation technique 
involves analyzing the trend of receivables turnover over time. By comparing the current period's turnover 
ratio with previous periods, analysts can detect any significant changes and assess the company's overall 
performance. For instance, if the turnover ratio has consistently decreased over time, this could indicate 
potential issues in the company's credit and collection policies, while an increasing trend suggests 
improvements in these areas. Additionally, it is essential to interpret receivables turnover in conjunction 
with other financial ratios such as the average collection period or the cash conversion cycle, as these 
ratios provide a comprehensive understanding of the company's liquidity and operating efficiency. By 
conducting a multi-faceted interpretation and analysis of receivables turnover, financial analysts and 
stakeholders can gain valuable insights into a company's financial health and make informed decisions 
based on this information.