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Glossary -> Accounts payable turnover ratio

Accounts Payable Turnover Ratio

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.

Revised: October 26, 2023

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