Account Receivable Turnover Ratio
The account receivable turnover ratio measures how efficient a company is to collect money owed to it. It evaluates how long it takes for a business to collect debts in a certain amount of time (a year or an accounting period for example).
In other words, this ratio measures how many times in a given period a company converts account receivable into cash.
Knowing this ratio is also a way of predicting the cash flow more precisely. Indeed, if a company needs a long time to collect account receivables, it is more likely that its cash flow will be lower or will take more time to be abundant.
As with any other financial ratio in financial analysis, you must use the account receivable turnover ratio with care. A high AR turnover ratio indeed means that the company is good at getting paid. But a low ratio doesn’t always mean that the company is not. It can have a credit policy which allows clients to pay later for example.
Furthermore, in certain industries, clients are paying on the spot (grocery for example). This will affect the ratio. It is then preferable to use this ratio to compare companies from the same industry.
The warehouse capacity is not a really financial analysis, but it is a very useful indicator for e-commerce or retail companies. It estimates the working warehouse capacity.
The theoretical warehouse capacity only measures the size and dimension of a business’ building. On the contrary, the working warehouse capacity estimates the real space that a company has at its disposal for storage, inventory and orders’ preparation.
It will take into consideration the weight and size of the products for example, or the space needed to prepare orders or move products.
Finding the right capacity will reduce the risk of dead stock and optimize the costs of maintaining a warehouse (rental, maintenance, inventory…).
At CTC Accounting, we use these indicators and many others for our clients. It helps us and them to run their businesses while making informed decisions.
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