The accounts receivable turnover ratio measures:

• A. How efficiently a company collects cash from its credit customers.
• B. The average time it takes to sell inventory.
• C. The proportion of net income to total assets.
• D. The percentage of sales made on credit.

Answer: (A)

Verified step by step guidance

1. Understand the concept of the accounts receivable turnover ratio: It measures how efficiently a company collects cash from its credit customers. This ratio is important for assessing the effectiveness of a company's credit and collection policies.
2. Identify the formula for the accounts receivable turnover ratio: \( \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \). This formula helps calculate how many times the company collects its average accounts receivable during a specific period.
3. Recognize the purpose of the ratio: It evaluates the efficiency of a company in converting its accounts receivable into cash. A higher ratio indicates faster collection of receivables, which is generally favorable for cash flow management.
4. Differentiate the accounts receivable turnover ratio from other metrics: For example, it does not measure the average time to sell inventory (inventory turnover ratio), the proportion of net income to total assets (return on assets), or the percentage of sales made on credit (credit sales percentage).
5. Conclude that the correct interpretation of the accounts receivable turnover ratio is: 'How efficiently a company collects cash from its credit customers.' This aligns with the formula and the purpose of the ratio.