New Enroll in our GIC Finance Online Course Here!

    Register

    Question

    Arvind Ltd is trying to ascertain its efficiency and

    calculates the accounts receivable turnover ratio. The ratio is higher in FY21 as compared to FY20. What does a higher accounts receivable turnover ratio in FY21 indicate?
    A Lower sales Correct Answer Incorrect Answer
    B Higher sales Correct Answer Incorrect Answer
    C Lower debt collection period Correct Answer Incorrect Answer
    D Higher debt collection period Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The accounts receivable turnover ratio, also known as the debtor’s turnover ratio, is an efficiency ratio  that measures how efficiently a company is collecting revenue – and by extension, how efficiently it is using its assets. The accounts receivable turnover ratio measures the number of times over a given period that a company collects its average accounts receivable . The accounts receivable turnover in days shows the average number of days that it takes a customer to pay the company for sales on credit. As such, a higher ratio would mean its taken lesser days to collect from debtors.

    Practice Next