This tutorial explains what the accounts payable turnover ratio is, its meaning, calculations and interpretations. We will also understand how to calculate this ratio in excel using the Colgate Case Study.
You can download the Colgate Accounts Payable Turnover template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/
What is Accounts Payable Turnover?
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The accounts payables turnover ratio is a measure of how frequently a business pays its suppliers.
Formula
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Accounts Payable Turnover Formula = Purchases / Average Accounts Payables
Interpretation of Accounts Payables Turnover Ratio
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– A lower turnover ratio shows that a business is paying its suppliers late than in earlier cycles. As a result, it could indicate that a company is experiencing financial difficulties or that it has negotiated different payment terms with its suppliers.
– An increased accounts payable turnover ratio may indicate that the company is paying off suppliers at a faster rate than in previous periods, indicating that it is effectively managing its debts and cash flow.
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