![]() ![]() Accounts Payable (AP) Turnover Ratio Formula & CalculationĪccounts payable turnover rates are typically calculated by measuring the average number of days that an amount due to a creditor remains unpaid. How to Calculate Accounts Payable (AP) Turnover RatioĪccounting professionals calculate accounts payable turnover ratios by dividing a business’ total purchases by its average accounts payable balance during the same period. Businesses that rely on lines of credit typically benefit from a higher ratio because suppliers and lenders use this metric to gauge the risk they are taking.It could be using its cash strategically. Low AP ratios could signal that a company is struggling to pay its bills, but that is not always the case.A higher accounts payable ratio indicates that a company pays its bills in a shorter amount of time than those with a lower ratio.Key Takeaways on Accounts Payable (AP) Turnover Ratio ![]() On a company’s balance sheet, the accounts payable turnover ratio is a key indicator of its liquidity and how it is managing cash flow. Accounting professionals quantify the ratio by calculating the average number of times the company pays its AP balances during a specified time period. The accounts payable turnover ratio measures how quickly a business makes payments to creditors and suppliers that extend lines of credit. What is Accounts Payable (AP) Turnover Ratio? This is a critical metric to track because if a company’s accounts payable turnover ratio declines from one accounting period to another, it could signal trouble and result in lower lines of credit.Ĭonversely, funders and creditors seeing a steady or rising AP ratio may increase the company’s line of credit. A high accounts payable ratio signals that a company is paying its creditors and suppliers quickly, while a low ratio suggests the business is slower in paying its bills. ![]()
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