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Payable turnover

Payable turnover

Description

Payable turnover ratio measures the amount of accounts payable to suppliers (and other short term creditors) that can be covered in the given period of time (per year, per quarter and etc). Data to calculate this ratio is collected from balance sheet and income statement.

Norms and limitations

An unduly small value of payable turnover shows that the company might have difficulties covering its’ payments to suppliers (and other short term creditors). Also it might mean that the company has negotiated very favorable conditions from their suppliers. In other way if the value of the ratio is high it indicates faster payments to suppliers.

There are no general norms for this ratio. It is recommended to compare this ratio with those of the companies, working within the same industry.

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