The accounts payable turnover
ratio is calculated as
total purchases in the year average accounts payable
Average accounts payable can be
determined 2 different ways:
Add together the a/p balances from the beginning
of the year and the end of the year, and divide by 2
Add together the a/p totals from the end of
each month, and divide by 12. This is a better way of
calculating the ratio.
If this ratio decreases from
one year to the next, it means the company is
taking longer to pay off its suppliers. If
the ratio increases, the company is paying off its
suppliers more quickly.