What is Account payable turnover?
Accounts payable turnover shows how many times a company pays off its accounts payable during a period. Accounts payable are short-term debt that a company owes to its suppliers and creditors. The accounts payable turnover ratio shows how efficient a company is at paying its suppliers and short-term debts.
What is an ideal accounts payable turnover ratio?
Some people think that, generally, a high turnover ratio is better. If the AP turnover ratio is 7 instead of 5.8 from our example, then DPO drops from 63 to 52. A high turnover ratio implies that lower accounts payable turnover in days is better.
Is accounts payable always payable 30 days?
Accounts payable have payment terms associated with them. For example, the terms could stipulate that payment is due to the supplier in 30 days or 90 days. The payable is in default if the company does not pay the payable within the terms outlined by the supplier or creditor.
How do you interpret accounts payable turnover?
Accounts payable turnover is a ratio that measures the speed with which a company pays its suppliers. If the turnover ratio declines from one period to the next, this indicates that the company is paying its suppliers more slowly, and may be an indicator of worsening financial condition.
How are AP days calculated?
The formula for AP days is super simple: Tally all purchases from vendors during the measurement period and divide by the average amount of accounts payable during that same period.
What does high Payable days mean?
A high days payable outstanding ratio means that it takes a company more time to pay their bills and creditors. Generally, having a high DPO is advantageous, because it means that the company has extra cash on hand that could be used for short-term investments.