Payables Turnover Ratio
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Category:  
Analytical

Measures the speed at which a company pays off its creditors.

What it Measures ?

How fast we pay our suppliers.

Relevant StakeHolders 

Accounts Payable Team, CFO

In-depth Use Case / Real-world Example

Payables Turnover Ratio is calculated by dividing total purchases by average accounts payable. For instance, if a company has ₹1,200,000 in purchases and ₹300,000 in average accounts payable, the payables turnover ratio would be 4. This means the company pays off its creditors four times a year. A high ratio may indicate a company is paying off its debts too quickly, potentially sacrificing working capital, while a low ratio could signal delayed payments and potentially strained relationships with suppliers. Understanding this ratio helps businesses manage cash flow and supplier negotiations more effectively.

KPI Definition

Business Value

Movement Direction

Sample Formula

Net Credit Purchases / Average Accounts Payable

Should Aim For
1
2
3
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