How is the recovery rate calculated in portfolio management?

• A. Total outstanding divided by total collected
• B. Total collected divided by total outstanding
• C. Net recoveries divided by total collected
• D. Total collected plus total outstanding

Answer: (B)

Recovery rate shows how much of what was owed has actually been collected. In portfolio management, you measure this by comparing the cash you’ve received to the amount that was outstanding. The correct approach is to divide total collected by total outstanding, yielding the proportion of the owed amount that’s been recovered. For example, if $60,000 has been collected from $100,000 that was outstanding, the recovery rate is 60,000 / 100,000 = 60%. This framing keeps the metric meaningful and comparable across portfolios. Inverting the ratio (outstanding divided by collected) would misrepresent the recovery, and adding the figures or mixing in other adjustments would not produce a true recovery rate.