Accounts payable turnover
In one sentenceCredit purchases divided by average accounts payable, showing how many times a year the business pays what it owes suppliers.
Simply put
A low ratio means you take longer before paying, so cash stays with you longer. But excessive delay may harm your relationship with suppliers and cost you early-payment discounts.
Some analysts use cost of goods sold instead of purchases if purchase figures are not available, so state the method you chose when comparing.
Worked example
A pharmacy made credit purchases of 900,000 SAR during the year, and the average supplier balance was 150,000 SAR.
Credit purchases900,000 SAR
Average accounts payable150,000 SAR
Average days to pay365 ÷ 6 = 60.8 days
Turnover = 900,000 ÷ 150,0006 times
Formula: Credit purchases ÷ average accounts payable
Don't confuse it with
Days payable outstandingIt is the same indicator in days: 365 ÷ accounts payable turnover.
in FullScreen ERP
Supplier accounts in the system: account statements and supplier payables aging. Purchasing and suppliers