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:
Return to ratios list
