This means that on average company XYZ paid its average accounts payable twice during 2021. Its account payable at the end of 20 is 2,000 and 3,000 respectively.Īccount Payable Turnover Ratio = 2.0 XYZ Company purchased $5,000 of materials in 2021. Example of Accounts Payable Turnover Ratio

A lower value means the company is paying faster. This KPI converts AP turnover into a number of days. Note: Total purchases is often a reflection of COGS on the Income Statement, and Accounts Payable is on the Balance Sheet. Days Payable Outstanding (DPO): This is another way to calculate the speed at which a company pays for purchases obtained on vendor credit terms. Whether you call the calculation days payable outstanding (DPO), creditor days, or accounts payable days, this ratio is used to.

While the AP turnover ratio tells you how many times per year your AP totals are paid off, the DPO calculates the average number of days it takes to pay them off. FormulaĪccounts Payable Turnover Ratio = (Total Purchases / Average Accounts Payable) calculation closely related to the AP turnover ratio. Overall, a high ratio is good and indicates that a business pays its bills and suppliers on time. This ratio is often used in conjunction with Current Ratio or Quick Ratio, for a well rounded assessment of your company’s liquidity. This is an important indicator for understanding your company’s liquidity and ability to manage cash, by reflecting the number of times your business paid off its accounts payable and short-term debt over the course of a period of time (month, quarter, year).

The Accounts Payable Turnover is a KPI that measures the rate your company pays off suppliers and other expenses.

Ap turnover formula in days