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Receivables turnover ratio (in days)

Method of calculation

Formula for receivables turnover ratio in days (receivables cycle): short-term receivables / net revenues from sales * number of days in the period

Ratio's description

The receivables turnover ratio (in days) informs about the number of days for which the cash is frozen in receivables (number of days required for the completion of the so called receivables collection cycle). Ratio's values are affected by the consumer crediting policy of the company and the solutions used in given industry.

Ratio's interpretation

  • When assessing the changes in ratio's value over time (over few periods):
    • the decrease of receivables cycle value is assessed positively and interpreted as an improvement of receivables management in the company (better recoverability, better crediting policy), as well as an improvement of financial liquidity – the cash returns to the company faster,

       

    • the increase of receivables cycle value is assessed negatively and interpreted as a deterioration of receivables management in the company (worse recoverability, worse crediting policy), as well as a deterioration of financial liquidity – the cash stays outside of the company for longer time.

       

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