when making comparisons it s ideal to look at businesses that have similar business models once again the results can be skewed if there are glaring differences between the companies being compared that s because companies of different sizes often have very different capital structures which can greatly influence turnover calculations and the same is often true of companies in different industries 
another example is to compare a single company s accounts receivable turnover ratio over time a company may track its accounts receivable turnover ratio every 30 days or at the end of each quarter in this manner a company can better understand how its collection plan is faring and whether it is improving in its collections limitations of the receivables turnover ratiothe receivables turnover ratio is just like any other metric that tries to gauge the efficiency of a business in that it comes with certain limitations that are important for any investor to consider some companies use total sales instead of net sales when calculating their turnover ratio this inaccuracy skews results as it makes a company s calculation look higher when evaluating an externally calculated ratio ensure you understand how the ratio was calculated another limitation is that accounts receivable varies dramatically throughout the year this is often the case with seasonal companies these entities likely have periods with high receivables along with a low turnover ratio and periods when the receivables are fewer and can be more easily managed and collected as such the beginning and ending values selected when calculating the average accounts receivable should be carefully chosen to accurately reflect the company s performance investors could take an average of accounts receivable from each month during a 12 month period to help smooth out any seasonal gaps example of receivables turnover ratiolet s say company a had the following financial results for the year we can calculate the receivables turnover ratio in the following way acr 64 000 72 000 2 68 000 artr 800 000 68 000 11 76 where acr average accounts receivable artr accounts receivable turnover ratio begin aligned text acr frac 64 000 72 000 2 68 000 text artr frac 800 000 68 000 11 76 textbf where text acr average accounts receivable text artr accounts receivable turnover ratio end aligned acr 2 64 000 72 000 68 000artr 68 000 800 000 11 76where acr average accounts receivableartr accounts receivable turnover ratio we can interpret the ratio to mean that company a collected its receivables 11 76 times on average that year in other words the company converted its receivables to cash 11 76 times that year a company could compare several years to ascertain whether 11 76 is an improvement or an indication of a slower collection process a company could also determine the average duration of accounts receivable or the number of days it takes to collect them during the year in our example above we would divide 365 by 11 76 to arrive at the average duration the average accounts receivable turnover in days would be 365 11 76 which is 31 04 days for company a customers on average take 31 days to pay their receivables if the company had a 30 day payment policy for its customers the average accounts receivable turnover shows that on average customers are paying one day late a company could improve its turnover ratio by making changes to its collection process a company could also offer its customers discounts for paying early companies need to know their receivables turnover since it is directly tied to how much cash they have available to pay their short term liabilities 