COLLECTION PERIOD (Period Average) Definition

Bookmark and Share

 

COLLECTION PERIOD (Period Average) is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow. Formula: ((AR (current) + AR (period ago)/2) / (Net Revenue / 365)

Learn new Accounting Terms

BOTTOM LINE, in accounting/finance, is specifically net income after taxes. In general, it is an expression as to the end results of something, e.g. the net worth of a corporation on a balance sheet, sales generated from a marketing campaign, or final decision on most any subject (Often said: 'give me the bottom line').

VOLATILITY RISK is the risk that a specific security price will increase or decrease by greater increments than the general market.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.