What it is:

This number reveals how quickly your company pays its bills. The payables turnover ratio reveals how often payables turn over during the year. A high ratio means there is a relatively short time between purchase of goods and services and payment for them. A low ratio may be a sign that the company has chronic cash shortages.

When to use it:

Payables turnover trends can help a company assess its cash situation. Just as accounts receivable ratios can be used to judge a company's incoming cash situation, this figure can demonstrate how a business handles its outgoing payments.

The formula:

Cost of sales divided by trade payables.

Calculate your payables turnover ratio:

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