That said, share turnover is interesting as a measure because the correlations don't always hold up. Net credit salesare sales where the cash is collected at a later date. It compares the number of shares that change hands during a particular period with the total number of shares that could have been traded during that same period. Investors may be unwilling to put their money at risk by acquiring the shares of a company with low share turnover. The accounts receivable turnover ratio formula is as follows: Accounts Receivable Turnover Ratio Net Credit Sales / Average Accounts Receivable Where: 1. Average Accounts Receivable (Ending + Beginning Accounts Receivable) ÷ 2. Days Sales Outstanding (DSO) (Average Accounts Receivable ÷ Net Revenue) × 365 Days. Share turnover ratio indicates how easy, or difficult, it is to sell shares of a particular stock on the market. The calculation of days sales outstanding (DSO) involves dividing the accounts receivable balance by the revenue for the period, which is then multiplied by 365 days. A higher share turnover may also indicate momentum if good news or bad news drives trading activity, a stock's share turnover ratio will likely be higher for a given period.Stocks with higher share turnover ratios are considered more liquid and easier to buy or sell, while stocks with lower share turnover ratios show stock is more illiquid.The large corporation has a turnover of 100 times, but only 1 of its shares were being traded compared to 5 of the smaller company’s shares. If this company had 10,000 traded and 500 shares outstanding, it would have a share turnover of 20 times. Because it only speaks to the quantity and not the quality, share turnover should not be used as a primary investing criterion. The small company might have a higher turnover because its stock price is more affordable.Share turnover does not signal anything about the quality of the stock or why, for the period being measured, it may be more or less liquid than other stocks.If you’ve achieved a high AR turnover ratio, you likely have: Effective collection processes. That’s good news for your cash flow, working capital and more. Share turnover is a measure of stock liquidity calculated by dividing the total number of shares traded over a period by the average number of shares outstanding for the period. A low turnover ratio represents an opportunity to collect excessively old accounts receivable that are unnecessarily tying up working capital. A high AR turnover ratio means that your accounts receivable efficiency is high and you can quickly collect owed payments. While a low ratio implies the company is not making the timely collection. 1 Formula: 2 A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Share turnover reflects the liquidity of a market by dividing trading volume over outstanding supply for a given period. A high turnover ratio indicates a combination of a conservative credit policy and an aggressive collections department, as well as a number of high-quality customers. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
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