AR Turnover Ratio
How many times per year a company collects its average accounts receivable balance, a velocity measure of receivables efficiency.
The accounts receivable turnover ratio measures how many times a company converts its receivables into cash over a period: net credit sales divided by average AR. A turnover of 12 means the company collects its average receivables balance roughly monthly; a turnover of 6 means every two months. It is the reciprocal view of DSO, since DSO equals 365 divided by the turnover ratio, and the two always tell the same story in different units.
Turnover is the form of the metric most used in financial statement analysis and lending contexts, while DSO dominates in AR operations, where days map naturally onto terms and aging buckets. When computing turnover, use net credit sales (cash sales inflate the ratio meaninglessly) and average AR across the period rather than the ending balance, which can be dressed up by a quarter-end collection push.
Interpretation needs industry context. High turnover generally signals efficient collections and tight terms, but abnormally high turnover for the industry can indicate credit policy so restrictive it is costing sales. Declining turnover across several periods, especially while sales grow, is one of the classic early warnings in financial analysis, whether you are examining your own company or reading a customer's financial statements during a credit review: receivables growing faster than sales means cash conversion is deteriorating or revenue quality is slipping.
Formula
AR Turnover = Net Credit Sales / Average Accounts Receivable; DSO = 365 / AR Turnover
Worked example
Net credit sales of $48M and average AR of $6M give a turnover of 8.0, meaning receivables convert to cash 8 times a year, equivalent to a DSO of 365 / 8 = 45.6 days.
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