A ratio measuring how quickly a company pays its suppliers, calculated by dividing total purchases by average accounts payable.
The AP Turnover Ratio shows how many times a company pays off its average accounts payable balance during a period. A higher ratio means faster payments to suppliers, while a lower ratio indicates the company is taking longer to pay. It's a key metric for cash flow management and vendor relationship health. Investors and creditors use it to assess liquidity and operational efficiency.
A company makes ₹60,00,000 in annual purchases with an average AP balance of ₹10,00,000. AP Turnover = 6, meaning it pays suppliers roughly every 2 months (365 ÷ 6 ≈ 61 days).
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
It varies by industry, but 6–12 is typical. Too high may mean missing early payment discounts or straining cash. Too low may indicate cash flow problems or strained supplier relationships.
A lower turnover (slower payments) conserves cash, improving short-term working capital. However, very slow payments can damage supplier trust and result in less favorable credit terms.
Money a business owes to its suppliers or vendors for goods and services received but not yet paid for.
The net amount of cash and cash equivalents moving into and out of a business during a specific period.
The difference between a company's current assets and current liabilities, representing the short-term liquidity available for day-to-day operations.
A liquidity ratio that measures a company's ability to pay its short-term obligations using its short-term assets.
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