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Analysis of Accounts Payable Turnover

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The accounts payable turnover ratio measures how many times a company pays off its suppliers during a given period, usually a year.

The ratio is calculated by dividing the cost of goods sold by the average accounts payable during the same period.

The average accounts payable is calculated by adding the beginning and ending balances and dividing the result by two.

Consider Veltra Corporation, a retail electronics business that sells goods worth six hundred thousand dollars annually.

Veltra Corporation begins the year with seventy-five thousand dollars in accounts payable and ends with eighty-five thousand dollars.

The average accounts payable is eighty thousand dollars, and the accounts payable turnover ratio is seven point five.

This means Veltra Corporation pays its suppliers seven point five times per year, or approximately every forty-nine days.

A high turnover ratio suggests the company pays its suppliers quickly, while a low turnover ratio shows slower payments.

Understanding this ratio helps businesses manage liquidity and maintain strong supplier relationships.

Overview

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Accounts Payable Turnover

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