Which metric measures the efficiency of collecting receivables?

• A. Current Ratio
• B. Accounts Receivable Turnover
• C. Debt-to-Equity ratio
• D. Gross Margin

Answer: (B)

Measuring how efficiently a business collects its credit sales is done with accounts receivable turnover. This metric shows how many times, on average, receivables are converted into cash during a period. It’s typically calculated by taking net credit sales and dividing by the average accounts receivable. A higher turnover indicates faster collection and stronger cash flow, while a lower turnover suggests slower payments from customers and potential liquidity concerns.

Other common metrics assess different things: the current ratio looks at short-term liquidity by comparing current assets to current liabilities; the debt-to-equity ratio examines financing structure and leverage; and gross margin reflects profitability on sales, not how quickly receivables are collected.