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An increase in a firm's receivable turnover ratio shows that the firm is doing good in terms of collecting its receivable from its customers.
receivable turnover = Cr. Sales/ Average AR.
Higher ratio means
1) Good recovery of AR. High sales or low AR.
2) Low credit period allowed to customers which may not be favorable in the long run.
IIts shows one or more from the following:
1-Increase in credit sales
2-Decrease in collecting activity
3-Increase in bad debts risks
4-Decrease in cash resources
It Shows either company's Receivables has increased significantly resulting in a high risk of bad debts or the company's revenue has dropped considerably.
This means that accounts receivables collection time has increased significantly. This means higher chances of Bad Debts.
it show that the receivable days has increased
it shows how many time the company collects its AR through a year.
the higher ration the more likely that company sell in cash basis
An increase in the receivable of the entity shows that the business is going towards the wealthy profit, it indicates the less chances of bad debts.
Increase is receivable turnover ratio will result in healthy working capital cycle where the accounts receivables are collected efficiently and there are low chances of any doubtful debts or bad debts. Higher the receivable turnover ratio, better is the liquidity position of the entity.
That either a company is operating on a cash basis or it has a very efficient credit control team for follow up and settlement on credit sales
