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Accounts Receivable Turnover
Accounts Receivable Turnover
The accounts receivable turnover is used to determine how quickly a company is receiving cash from its clients. This helps a company determine the timeline of its collection, so it knows when to grant lines of credit to potential customers. It can use this to determine if the turnover rate is in line with the goals of the company, and it can be used to compare historic performance with current performance.
The net credit sales above refers to sales. Average accounts receivables is the accounts receivables of different years added and divided by two.
This turnover can be used in the denominator of 365/turnover to determine the number of days it takes, on average, to receive cash.
Example
Example
In 2017, Apple Inc. generated $229,234 million in sales. In 2017, it had $17,874 million in accounts receivables, and it had $15,754 million in accounts receivables in 2016. Find and interpret the accounts receivable turnover and associated days.
229,234/((17,874+15,754)/2)=13.63 (turnover)
365/13.63=26.78 days
On average, it takes Apple 27 days to receive its accounts receivables from customers.
Sources
Sources
https://www.investopedia.com/terms/r/receivableturnoverratio.asp
Inventory Turnover
Inventory Turnover
The inventory turnover is used to determine how quickly a company is able to sell its inventory. This helps a company determine the timeline of its distribution, so it knows when to ship and produce more goods. It can use this to determine if the turnover rate is in line with the goals of the company, and it can be used to compare historic performance with current performance.
The cost of goods cold refers to the cost of sales. Average inventory is the inventory amounts of different years added and divided by two.
This turnover can be used in the denominator of 365/turnover to determine the number of days it takes, on average, to sell the inventory of a company.
Example
Example
In 2017, Apple Inc. had a cost of sales of $141,048 million. It had $4,855 million in inventory for 2017, and the 2016 inventory was $2,132 million. Find the turnover and number of days in Apple Inc.'s selling cycle.
141,048/((4,855+2,132)/2)=40.37 (turnover)
365/40.37=9.04 days
Apple Inc.'s average amount of days in the selling cycle is about 9 days.
Sources
Sources
Accounts Payable Turnover
Accounts Payable Turnover
The accounts payable turnover is used to determine how quickly a company is paying its suppliers for goods. This helps a company determine the timeline of its payment, so it knows when to make payments in order to establish good relationships with suppliers. It can use this to determine if the turnover rate is in line with the goals of the company, and it can be used to compare historic performance with current performance. Having good supplier relationships can also be helpful in continuing business into the future.
The total purchases refer to the cost of sales, the amount that is borrowed, or the cost of goods sold. Average accounts payable are the accounts payables of different years added and divided by two.
This turnover can be used in the denominator of 365/turnover to determine the number of days it takes, on average, to pay suppliers.
Example
Example
In 2017, Apple Inc. had a cost of sales of $141,048 million, and it had accounts payable of $49,049 million. In 2016, it had accounts payable of $37,294 million. Find the accounts payable turnover and number of days.
141,048/((49,049+37,294)/2)=3.267 (turnover)
365/3.267=111.62 days
On average, it takes Apple Inc. 112 days to pay its suppliers. This amount should be compared with the supplier expectation to determine if this is a good or bad turnover.
Sources
Sources
https://www.investopedia.com/terms/a/accountspayableturnoverratio.asp
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