Accounts Receivable and Inventory Operational Metrics
and inventory are two important accounts for a company in terms of how both accounts can have a significant impact on the cash balance and working capital in a company. High inventory and AR balances can be a bad thing for a company if they are not considered in terms of sales and cost of goods sold as it can indicate too much cash is being tied up.
Cash management is an important aspect of any companyâ s operations, further highlighting the importance of managing these two accounts. This article will look at accounts receivable turnover, days sales in AR, inventory turnover, and days sales in inventory.
Accounts Receivable Turnover & Days Sales in AR
Accounts receivable turnover is a useful metric for assessing how much of a companyÃƒÂ¢ s annual revenues is being held in AR. Having a large AR balance can be a concern as it means cash is tied up as a receivable and not actually available for the company to use. AR turnover is calculated as follows: AR Turnover = Annual Revenue ÃƒÂ
By Jeffrey Glen