Accounts Payable Turnover Ratio

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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

BREAKING DOWN '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.

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RELATED FAQS
  1. How are Net Credit Purchases calculated in the accounts payable turnover ratio?

    The accounts payable turnover ratio treats net credit purchases as equal to cost of goods sold (COGS) plus ending inventory, ... Read Full Answer >>
  2. What is considered to be a healthy accounts payable turnover ratio?

    In general terms only, investors and analysts consider a good, healthy accounts payable turnover ratio to fall in the range ... Read Full Answer >>
  3. Does a high efficiency ratio mean that the company is profitable?

    Though a company may have a high efficiency ratio, this does not necessarily mean it is profitable. Efficiency ratios are ... Read Full Answer >>
  4. What is the difference between accounts payable turnover ratio and accounts receivables ...

    The accounts payable turnover ratio measures the speed in which a company pays its vendors, while the accounts receivable ... Read Full Answer >>
  5. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
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