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Wize University Introduction to Financial Accounting Textbook > Financial Statement Analysis

Receivables Turnover Ratio

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Receivables Turnover Ratio and Average Collection Period

The receivables turnover ratio and average collection period are liquidity ratios that measure how quickly and how often the company is collecting from its customers.

Receivables Turnover Ratio


  • Measures how many times per period, on average, accounts receivables are collected
  • A high ratio indicates strong liquidity.
  • A low ratio indicates the company may have trouble collecting its receivables.
Wize Tip
Since companies don't typically report net credit sales, use net sales in its place.

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Average Collection Period



  • Measures how many days, on average, it takes to collect from customers.
  • Should be less than the credit term Example: If net/30 is offered to customers, collection should take place in less than 30 days.
  • Ideally greater than the discount period Example: If 2/10 is offered to customers, ideally collection happens in more than 10 days.



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Example: Receivables Turnover Ratio and Average Days to Collect

Compute and interpret the receivables turnover ratio and average days to collect.





Practice: Receivables Turnover and Average Days to Collect

Compute the receivables turnover ratio and average days to collect for the year 2020. Do not round your work, round your final answer to 2 decimal places and enter you answer in decimal form.









Compute the receivables turnover ratio and the average days to collect for the year 2020.