Series 79: Payables Turnover Ratio

Payables Turnover Ratio

Where a company’s receivables turnover ratio measures the time it takes to collect money from customers, the payables turnover ratio addresses the time the company takes to pay money to suppliers. A high payables turnover ratio means the company pays its suppliers very promptly; a low ratio may indicate that the company has chronic cash flow problems (or sloppy payment practices). Alternatively, a low ratio could also mean the company has negotiated favorable credit terms from its suppliers.

To calculate the payables turnover ratio, determine the average accounts payable for the