Calculate AR turnover ratio and days sales outstanding to assess collection efficiency and cash flow management.
Accounts receivable turnover measures how many times, on average, a company collects its outstanding receivables during a period. This calculator divides net credit sales by average accounts receivable (the mean of the beginning and ending AR balance for the period), then converts that ratio into days sales outstanding by dividing the period's day count by the turnover figure. This calculator uses a fixed 365-day year, so the formula only produces a valid DSO when the net credit sales figure is a full year's total or has already been annualized; feeding in a single quarter's sales without annualizing will produce a DSO roughly four times too high. The input people most often get wrong is the sales number: entering total revenue instead of net credit sales inflates the ratio, because cash sales never pass through receivables and any returns or allowances should already be netted out before you type the figure in.
A concrete input and expected output from the current implementation.
Input
Net credit sales (annual): $1,200,000. Beginning accounts receivable: $150,000. Ending accounts receivable: $170,000.
Expected output
Average AR = $160,000. AR Turnover = 7.5. Days Sales Outstanding = 48.7 days.
Average AR is (150,000 + 170,000) / 2. Turnover is 1,200,000 / 160,000 = 7.5, and DSO is 365 / 7.5, rounded to one decimal. Because the $1,200,000 figure is a full year of net credit sales, dividing by the calculator's 365-day year gives a valid DSO.
The tool averages your beginning and ending accounts receivable balances for the period, then divides net credit sales by that average. A higher ratio means receivables are collected more often during the period; a lower ratio means cash is tied up in unpaid invoices longer. If you only have an ending AR balance, the tool uses it directly instead of an average.
DSO restates the same relationship in days by dividing 365 by the turnover ratio, showing roughly how many days of sales are sitting in receivables at any time. Because the day count is fixed at 365, the net credit sales input needs to be a full year's figure (or already annualized); if you only have a quarter's sales, compute turnover from that quarter's figures and divide the quarter's own day count (roughly 90-92) by that ratio instead of using this calculator's 365-day output directly. Some analysts use a 360-day year instead of 365; the two conventions produce slightly different DSO figures, so this calculator's day count should be checked against whatever convention you're comparing it to.
Use net credit sales only, not total revenue. If a meaningful share of sales is paid in cash at the point of sale, those never sit in accounts receivable, so including them makes turnover look faster and DSO look shorter than collections actually are.
There's no fixed threshold; it depends heavily on your payment terms and industry. A ratio that looks weak for a business offering net-30 terms could be normal for one offering net-90. Compare the result to your own trend over time and to close competitors, not a generic benchmark.
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