What is Accounts Payable Turnover Ratio?

The Accounts Payable Turnover Ratio is a short-term liquidity metric that measures how quickly a company pays off its suppliers. It indicates the number of times a company pays its accounts payable during a period.

For Startups: A low turnover ratio can indicate that a startup is effectively using the credit extended by its suppliers to manage its working capital. However, a very low ratio might signal that the company is struggling to pay its bills on time, which could be a sign of financial distress.

For Businesses: This ratio is often analyzed in conjunction with Days Payable Outstanding (DPO). The goal is to manage payments efficiently without damaging crucial supplier relationships.

Calculation: AP Turnover = Total Supplier Purchases / Average Accounts Payable

Example: A company made ₹50 Lakhs in purchases during a year and had an average accounts payable balance of ₹5 Lakhs. Its AP Turnover Ratio is 10, meaning it paid its entire accounts payable balance 10 times during the year.