What does "accounts payable turnover" mean?


Quick Answer

"Accounts payable turnover" is a ratio that measures the liquidity of a company according to the rate at which it pays its suppliers. It is calculated by finding the total supplier purchases and dividing the figure by the average accounts payable for a specific period.

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Full Answer

Creditors use the accounts payable turnover ratio to determine the ability of a company to pay future debts. A decrease in this ratio, as compared to a previous period, shows that the company is taking longer to pay its suppliers. Such a decrease may indicate that the company's financial condition is worsening, while an increase in the ratio may indicate the opposite.

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