![]() ![]() Hence, the company has paid off the accounts payable a total of 2.85 times during that particular year. So, the AP turnover ratio comes out to be:200/70 Therefore, in accordance with the above-given formula, the average of the accounts payable at the beginning and at the end of the year is (50+90)/2 The accounts payable amount was 50 million at the start of the year, but at the end of the year, it turned out to be 90 million. ![]() Now, let’s assume any other company whose purchases were 200 million at the start of the year. Therefore, the company has paid off the accounts payable a total of 2.5 times during that particular year. So, the AP turnover ratio comes out to be: 50/20 million So, according to the formula, the average of the accounts at the beginning and at the end of the year is (10+30) /2 = 20 million. Suppose the purchases were 50 million for a year for a companyĪccounts payable were 10 million at the start of the year, but it came out to be 30 million at the end of the year. The increase in the graph of the AP turnover ratio means that the company has made all the payments to the suppliers either at the correct time or at a shorter period of time as compared to its previous records in paying off. The decrease in the graph of the AP turnover ratio means that the company is currently taking longer than usual to pay off its suppliers than its previous records. It is generally calculated by dividing the total purchases of a business by the average of the total payable accounts by the company during that period of time. The accounts payable turnover ratio indicates a company's liquidity and defines how the cash flow has been managed throughout the company. It simply measures the quickness or quantifies the time in which a business makes payments to the suppliers. Accounts Payable Turnover Ratio: Definition, Formula and Example ![]()
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