Accounts Payable Turnover Ratio

AAA

DEFINITION of 'Accounts Payable Turnover Ratio'

A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. 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.

Accounts Payable Turnover Ratio

INVESTOPEDIA EXPLAINS 'Accounts Payable Turnover Ratio'

The measure shows investors how many times per period the company pays its average payable amount. For example, if the company makes $100 million in purchases from suppliers in a year and at any given point holds an average accounts payable of $20 million, the accounts payable turnover ratio for the period is 5 ($100 million/$20 million). If the turnover ratio is falling from one period to another, this is a sign that the company is taking longer to pay off its suppliers than it was before. The opposite is true when the turnover ratio is increasing, which means that the company is paying of suppliers at a faster rate.

RELATED TERMS
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to ...
  2. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  3. Activity Ratios

    Accounting ratios that measure a firm's ability to convert different ...
  4. Current Ratio

    A liquidity ratio that measures a company's ability to pay short-term ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
Related Articles
  1. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  2. Fundamental Analysis

    Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.
  3. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  4. Fundamental Analysis

    What role does discounted cash flow (DCF) play in stock valuation?

    Understand the meaning and significance of discounted cash flow, and learn how market analysts commonly use this stock evaluation tool.
  5. Fundamental Analysis

    What is the first day of the third quarter?

    Learn when the first day of the third quarter begins. Explore how reported financial results may have a profound impact on the price of shares.
  6. Fundamental Analysis

    What is the difference between revenue and profit?

    Understand the difference between revenue and profit, two key concepts in business accounting, including where each can be found on an income statement.
  7. Fundamental Analysis

    What is the difference between revenue and sales?

    Learn to distinguish between a company's revenue and its sales, and see why the distinction is important when analyzing a company's financial performance.
  8. Mergers are not the same as acquisitions.
    Investing

    What's a Merger?

    Mergers are not the same as acquisitions. In an acquisition, one company buys and subsumes another company, leaving only the buyer in place. In most mergers, both companies merge to form an entirely ...
  9. Fundamental Analysis

    What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health.
  10. Fundamental Analysis

    What is a bad interest coverage ratio?

    Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center