You will need
- - The balance sheet and statement of profit and loss for the period;
- formula to calculate accounts receivable turnover:
- Accounts receivable turnover (times) = (Revenue from sales)/(Average accounts receivable);
- - formula to calculate average accounts receivable:
- Average accounts receivable = (accounts Receivable at beginning of the period + accounts Receivable period-end )/2;
- formula to calculate accounts receivable turnover in days:
- Accounts receivable turnover(days) = ((Average accounts receivable)/(sales for period))* number of days of the reporting period.
Calculate the amount of receivables average of debt for the analyzed period. Take the data on the outstanding debt at the beginning and at the end of the period from the balance sheet during the reporting period. Add these two numbers and divide by 2. So you will calculate the average amount of receivables debt.
Divide the revenue over the period in the amount of the average receivables debt. Data on the amount of revenue you take in the statement of profit and loss during the reporting period. Dividing the amount of revenue in the amount of receivables average of debt, you will find the turnover of accounts receivable debt in rpm. Count the number of days in the analyzed period. Multiply the resulting ratio accounts payable turnover debt to turnover by the number of days in the analyzed period. So you calculate the turnover of receivables of debt in days.
Calculate the turnover of receivables and debts for the previous accounting period. Compare and analyze the obtained figures. If this indicator tends to decrease, it means that the faster customers pay their bills, and the solvency of the organization improves.
There is no exact standard for the measure of receivables turnover. In every industry it's different. But in any case, the less the number of days of receivables turnover, the better (this means that the debtors actively return their debts of your organization).