Understanding the Accounts Payable Turnover Ratio

:moneybag:The accounts payable turnover ratio helps measure the efficiency of a company's cash management and supplier relationships.

:calendar:The days payables outstanding ratio can help predict a company's future cash flows and ensure it has enough cash to meet its obligations.

:chart_with_upwards_trend:A higher accounts payable turnover ratio indicates that a company is paying its suppliers more quickly, which can be a sign of financial strength.

:warning:The accounts payable turnover ratio may not accurately reflect the current market value of inventory if the company uses the FIFO inventory valuation method.

:money_with_wings:The days payables outstanding ratio gives insight into how quickly a company pays its suppliers, which can affect its relationships and negotiating power.

What does the accounts payable turnover ratio measure?

—The accounts payable turnover ratio measures how often accounts payable are paid on average within a year.

How is the accounts payable turnover ratio calculated?

—The accounts payable turnover ratio can be calculated by dividing total supplier purchases on credit by the average accounts payable balance.

What does the days payables outstanding ratio measure?

—The days payables outstanding ratio measures how many days on average it takes for a company to pay its suppliers.

Why is the days payables outstanding ratio important?

—The days payables outstanding ratio can be a useful predictor of future cash flows and helps ensure the organization has enough cash to meet upcoming obligations.

What does a higher accounts payable turnover ratio indicate?

—A higher accounts payable turnover ratio indicates that a company is paying its suppliers more quickly, which can be a sign of financial strength.

00:00The accounts payable turnover ratio measures how often accounts payable are paid on average within a year. It can be computed by dividing total supplier purchases on credit by the average accounts payable balance.

00:08The accounts payable turnover ratio is used to measure the quantity of total purchases from suppliers on credit. Cost of goods sold may not represent goods purchased on credit and may not reflect current inventory market prices.

00:16Dividing 365 by the accounts payable turnover ratio yields the days payables outstanding ratio, which measures how many days it takes for a company to pay its suppliers.

00:26The days payables outstanding ratio can be a useful predictor of future cash flows and helps ensure the organization has enough cash to meet upcoming obligations.

01:00A higher accounts payable turnover ratio indicates that a company is paying its suppliers more quickly, which can be a sign of financial strength.

01:36The accounts payable turnover ratio and days payables outstanding ratio are important for managing cash flow and maintaining good supplier relationships.

01:49The days payables outstanding ratio gives insight into how quickly a company pays its suppliers, which can affect its relationships and negotiating power.

02:02Understanding these ratios is important for financial analysis and determining the efficiency of cash management.