Financial modelling terms explained

Accounts Payable Turnover Ratio

Accounts payable turnover ratio, also called the days payable outstanding ratio, is a ratio that measures how fast a company pays its liabilities. This means the ratio shows how many times a company pays its liabilities in a year.

What is Accounts Payable Turnover Ratio?

Accounts payable turnover ratio (APTR) is a liquidity ratio that measures how efficiently a company is able to convert its accounts payable into cash. It is calculated by dividing the company's annual sales by its average accounts payable. The higher the ratio, the more efficiently the company is able to manage its accounts payable.

A low APTR could be a sign that the company is not able to pay its bills on time, which could lead to liquidity problems. Conversely, a high APTR could be a sign that the company is not able to receive payments from its customers quickly enough, which could lead to cash flow problems.

How Do You Calculate Accounts Payable Turnover Ratio?

The accounts payable turnover ratio measures how quickly a company pays its suppliers. It is calculated by dividing the company's annual accounts payable by its annual sales. The higher the ratio, the faster the company is paying its suppliers. This can be a good indicator of how efficiently the company is managed.

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