Account receivable turnover ratio is the efficiency ratio or activity ratio. It is used to measure that how many time a business collect its average accounts receivable during the period.
During the year if the company had 30,000 dollars average receivable and collect 60,000 dollars of receivable during the year it means that the company has twice amount of average receivable.
To find the efficiency of the company that how a company collects its credit sales from customers this ratio is used.
Some companies collect receivable from customers within 3 months and some collect in 6 months. This is also known as the liquidity ratio.
If the company is good at converting the receivable into cash then the company has good liquidity ratio.
Financial Ratio is a forum where you will learn about all ratios definitions and formulas.