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Accounts Receivable Turnover
Because the accounts receivable turnover calculation is conceptually and quantitatively related to the days receivable outstanding (DRO) cycle, its preparation and comparison to other tools are a fundamental element of the measurement process. Using net sales in the numerator and average accounts receivable in the denominator, the calculation reveals how many times during a period in which customers are billed funds are collected and applied to balances. As displayed in Table 13.8, NikoTech's Y1 results show a turnover of a bit more than five times per year and are just below four in Y2.Y1 | Y2 | |
|---|---|---|
Days Receivable Outstanding | 72 | 97 |
Receivables Turnover | 5.05 | 3.8 |
Product | 365 | 365 |
Akin to the inventory turnover and DOI comparison, accounts receivable turnover and DRO are simply two different ways of expressing the same outcome. As such, it is no surprise that when the Y1 turnover figure of 5.05 is multiplied by 72, the product is 365. Applying the same math to Y2, a turnover of 3.8 times per year times 97 DRO also equals 365 (with allowances for rounding error).As stand-alone measures, both inventory turnover and accounts receivable turnover provide valuable insight as to how well a company is managing its assets. When combined with other measures, these tools help to validate or disprove what the additional results indicated, creating a vector between utilization and supply chain velocity.
