Series 79: 3.1.5.3. Payables Turnover Ratio

3.1.5.3. Payables Turnover Ratio

Where a company’s receivables turnover ratio measures the time it takes to collect money from customers, the payables turnover ratio addresses the time the company takes to pay money to suppliers. A high payables turnover ratio means the company pays its suppliers very promptly; a low ratio may indicate that the company has chronic cash flow problems (or sloppy payment practices). Alternatively, a low ratio could also mean the company has negotiated favorable credit terms from its suppliers.

To calculate the payables turnover ratio, determine the average accounts payable for the period by adding the beginning and ending payables figures for the period from the l