At times, it is difficult to identify exact credit purchase. Only Credit Purchase has to be taken in the numerator.

Hence, Average Accounts Payable is nothing but a simple average of Accounts payable balance as at current period-end and previous-period end.īelow are the important aspects which are relevant while calculating numerator and denominator. Now, such amount outstanding towards the vendors is recorded in the Balance Sheet as Accounts Payable. We take Credit Purchases in the numerator and Average accounts payable in the denominator.Ĭredit purchase refers to the purchase made by the company from various vendors in which payment for such purchases are not made in cash immediately, but after some period. The formula for the payable turnover ratio is quite logical. Hence, understanding the this turnover ratio helps in assessing the overall liquidity position of the company as well. It helps in understanding if the company makes the payment to vendors too often or it generally lags the payment due to such vendors.

Now, the Payable turnover ratio basically indicates the frequency at which the company makes paymentto its Account Payable. The amount payable to such vendors is called as Accounts Payable. Payable turnover ratio meaningĪs part of business operations, companies make credit purchases from various vendors. Let us understand about this turnover ratio in-depth. Similarly, another important activity ratio is the Payable turnover ratio. These ratios help in understanding the efficiency at which the company utilizes the resources. As part of financial ratio analysis, activity ratios play an important role.

Receivable turnover ratio