To calculate the accounts payable turnover ratio, you need to first calculate the average trade payables for the financial year. How do calculate Accounts Payable Turnover Ratio? In Some cases, net purchases are used in the numerator instead of net credit purchases.Īverage trade payables = (Creditors at the beginning of the year + Creditors at the end of the year) / 2, if the opening balance is not given, the closing balance can be used. The accounts payable turnover ratio formula is calculated by net credit purchases by average trade payables.Īccounts Payable Turnover Ratio = (Net credit purchases / Average Trade Payables) It can be used in any financial statement analysis and shows a company's ability to pay its suppliers. The accounts payable ratio is short-term liquidity, evaluating how efficiently a company is paying creditors and short-term debts.
Accounts payable turnover gauges at which rate a company pays its suppliers.Īccounts payable are short-term debts owed to suppliers and creditors by a business. The accounts payable turnover ratio, also known as the 'creditors turnover ratio', measures the number of times a company pays off its creditors in a year. What is the Accounts Payable Turnover Ratio?
The accounts payable turnover ratio is a helpful activity ratio for learning more about a company's financial situation. The objective of a business should be to generate enough revenue to pay off its accounts payable as quickly as possible, but not so quickly that it loses opportunities by not using that money to invest in other businesses.
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