Question

what kinds of information does the accounts receivable turnover ratio provide? Explain in 100-150 words.

Answer 1

Accounts receivable turnover ratio is an activity ratio.It indicates how efficiently and effectively a company maintains its assets.It also indicates that how efficiently the company collects its money from its debtors.Accounts receivable turnover ratio is calculated only in firms that offer goods or services on credit basis to their consumers. Indirectly the firm gives interest free loans to the debtors.An high accounts receivable turnover ratio indicates that the firm is operates on cash basis. It may also indicate that the firm efficiently collects its receivables on time.Further it indicates that the firm's customers are loyal and qualitative.A high ratio indicates that the firm has a conservative and strict policies for recovering its receivables.On the other hand a low ratio indicates that the majority of services or goods are given on credit basis and it also indicates that the firm does not have good control and effective management of receivables.It indicates that the firm doesn't have qualitative customers who can be relied upon. Further it indicates that firm doesn't have conservative and stricter terms for debtors.