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. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  2. Accounts Payable - AP

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

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

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

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

    1. The degree to which an asset or security can be bought or ...
Related Articles
  1. Ratio Analysis Tutorial
    Fundamental Analysis

    Ratio Analysis Tutorial

  2. Dynamic Current Ratio: What It Is And ...
    Fundamental Analysis

    Dynamic Current Ratio: What It Is And ...

  3. Introduction To Fundamental Analysis
    Markets

    Introduction To Fundamental Analysis

  4. What is the difference between enterprise ...
    Investing

    What is the difference between enterprise ...

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center