How to Calculate Sales Ratio

Video Transcript

"Hi, I'm Spencer and this is Jeannine. We're, we're, we work for the Account Teams in Salt Lake City on helping people with their books and helping them so they can concentrate on what they do best rather than all the bookwork. I'm going to talk to you today about sales receivables turnovers. You, you may think this is something we would pay much attention to; but let me give you a good example. Suppose that you are at a restaurant and you're selling meals at the restaurant. People pay with cash or with a credit card. You receive the money the day you give them the goods and your receivables are very good; it's a one-day turnover; maybe an hour turnover on that. On the other hand, you maybe a little carpenter and you're doing work for general contractors and he doesn't pay you until he gets paid and there's ten other contractors that do the work for him and one of those guys doesn't do a good job or the owner doesn't like it, he won't pay the general contractor and the general contractor may not pay you. Sometimes this can last a half year to a year and then your receivables turnover looks very very bad 'cause you're strung out with your money a long time. Sales or receivables turnover is how quickly people pay you. It is the net revenues divided by your accounts receivable."