![]() To calculate the accounts payable turnover ratio, the company's net credit purchases are divided by the average accounts payable balance. Conversely, a low ratio may suggest slow payment and potential cash flow problems. The higher the accounts payable turnover ratio, the more favorable it is, as it indicates prompt payment to suppliers. This liquidity ratio measures the average number of times a company pays its creditors over an accounting period. Optimizing accounts payable turnover involves taking advantage of credit terms with suppliers and vendors.Īccount payable turnover is a key metric that helps businesses determine how efficiently they pay their creditors and assess their creditworthiness.The ratio can be calculated by dividing net credit purchases by the average accounts payable balance.A higher accounts payable turnover ratio indicates prompt payment to suppliers and reflects favorable liquidity and creditworthiness, whereas a A low ratio may indicate slow payment cycles and cash flow problems.The accounts payable turnover ratio measures the average number of times a company pays its creditors over an accounting period.In this article, we’ll explore accounts payable turnovers in detail, defining the term, how to calculate it, its usefulness in financial planning and strategies for analysing and improving this important metric. On the other hand, a low ratio may indicate slow payment cycles and a cash flow problem. A higher accounts payable turnover ratio is generally more favorable, indicating prompt payment to suppliers. This is an important metric that indicates the short-term liquidity and creditworthiness of a company. The accounts payable turnover ratio is a liquidity ratio that measures the average number of times a company pays its creditors over an accounting period. Understanding account payable turnover is vital for effective financial management and evaluating your company's liquidity performance.
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