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Accounts Payable Turnover

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Glossary  -> Accounts payable turnover ratio

Accounts Payable Turnover Ratio

The accounts payable turnover ratio is calculated as

    total purchases in the year
    average accounts payable

Average accounts payable can be determined 2 different ways:

bulletAdd together the a/p balances from the beginning of the year and the  end of the year, and divide by 2
bulletAdd together the a/p totals from the end of each month, and divide by 12.  This is a better way of calculating the ratio.

If this ratio decreases from one year to the next, it means the company is taking longer to pay off its suppliers.  If the ratio increases, the company is paying off its suppliers more quickly.

Revised: September 19, 2017

   

 

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