What Does Accounts Payable Turnover Ratio Mean?
A short-term liquidity measure used to quantify the rate at which a company pays off its accounts payable to suppliers. The accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.
Investopedia explains Accounts Payable Turnover Ratio
The measure reveals how many times per period a company pays its average payable amount. For example, if the company makes $100 million in purchases from suppliers in a year and at any specific point holds an average accounts payable of $20 million, the accounts payable turnover ratio for the period is 5 ($100 million/$20 million). A falling turnover ratio is a sign that the company is taking longer to pay off its suppliers, which could be a bad sign. A rising turnover ratio means that the company is paying off suppliers at a faster rate, which is good.
Related Terms:
• Accounts Payable—AP
• Accounts Receivable—AR
• Current Ratio
• Liquidity
• Receivables Turnover Ratio
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