Accounts receivable turnover ratio measures what?

• A. The frequency of conversion of accounts receivable to cash
• B. Average collection period
• C. Accounts receivable turnover ratio
• D. Debt to total assets ratio

Answer: (C)

The main idea is how quickly a company converts its receivables into cash. The accounts receivable turnover ratio shows how many times, on average, the outstanding receivables are collected during the period. A higher turnover means receivables are being collected faster, which generally indicates better liquidity and collection efficiency. It’s calculated by dividing net credit sales by the average accounts receivable.

Average collection period is related but not the measure itself—it’s the number of days it takes to collect receivables and is obtained from turnover as 365 divided by the turnover. The debt to total assets ratio is a solvency measure, not about how quickly receivables are collected.