Certified Management Accountant Practice Exam 2025 - Free CMA Practice Questions and Study Guide

A high Receivables Turnover ratio indicates efficient collection of receivables. This ratio measures how many times a company collects its average accounts receivable during a specific period, usually a year. A higher ratio suggests that the company is able to quickly convert its receivables into cash, reflecting effective credit management and a strong ability to collect payments from customers.

This efficiency can stem from several factors, such as a stringent credit policy, good customer relationships, or effective billing procedures. When a company can swiftly collect what is owed, it enhances its liquidity and reduces the risk of bad debts, which is crucial for maintaining healthy cash flow.

In contrast, a low Receivables Turnover ratio would suggest that the company is experiencing difficulties in collecting outstanding amounts, possibly leading to cash flow issues and a higher likelihood of uncollectible accounts. Therefore, a high ratio is positively viewed as it signals strong financial health and effective management of credit policies.