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).
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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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