Accounts payable turnover meaning1/18/2024 Formula for accounts payable turnover ratio If other businesses have similar turnover ratios, it can show the company is meeting the standard for the industry. If a company has a decreasing ratio, it's a good idea to compare this ratio with similar companies in the same industry. While a decreasing ratio can sometimes indicate that a company is having cash flow problems, it can also mean that a company has negotiated different payment terms or lower interest rates with its creditors. Decreasing ratioĪ decreasing ratio means that a company is taking longer to pay off its debts than it has previously. Generally, businesses that require lines of credit want to have an increasing ratio because creditors use this metric to evaluate risks when lending money. It could also mean the company is actively working to improve its credit rating. An increasing ratio can also mean that a company is getting incentives, such as early payment discounts, to make these payments quickly. This can indicate that it has enough cash flow to pay its obligations in a timely manner. Here is what those changes can indicate: Increasing ratioĪn increasing ratio shows that a company is paying off its debts more quickly than it has in the past. The accounts payable turnover ratio can either increase or decrease over time. Related: What Is Accounts Payable? Definition and How It Works What does the accounts payable turnover ratio indicate? Creditors may consider this ratio to determine whether to extend a line of credit to the company, while investors may use it to see whether a company has enough cash to meet its short-term obligations. The accounts payable turnover ratio shows how efficiently a company pays this debt. Accounts payable is the amount of short-term debt that a company owes. The accounts payable turnover ratio is a financial measurement that shows the average number of times a company pays off its accounts payable during a specific time period, usually one year. View more jobs on Indeed View More What is the accounts payable turnover ratio?
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