The accounts payable turnover ratio, sometimes called creditor’s turnover ratio or payable turnover, measures how many times a company pays its creditors over an accounting period. It is a ratio that measures short-term liquidity, with a higher ratio being more favorable to a lower ratio. Calculating the turnover ratio is of particular interest for creditors as they measure a company's ability to meet their obligations. The formula for calculating the ratio is as follows: Accounts Payable Turnover Ratio = Net Credit Purchases / Average Accounts Payable Sometimes, cost of goods sold (COGS) is used in the numerator instead of net credit purchases.
How to Use the Excel TemplateThis model is for beginners who are looking to learn more about the A/P turnover ratio, and who want to teach themselves based on an example. It is a simple tool which requires the user to input the following information:
- Annual sales on credit
- Amount of product returns
- Accounts payable, beginning of year
- Accounts payable, end of year
Learn More About A/P Turnover RatioRead CFI's comprehension guide to learn more about the formula, use, and examples of the ratio!
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