The formula for a payable turnover account is to divide the purchases made on credit by paid an average balance of the account. As for account customers, companies rarely reveal how many of their purchases on credit.
Therefore, the usual shortcut that is created is to assume that any purchase credit purchases.
The ratio of accounts payable rotation is the ratio of short-term liquidity, which helps you to understand how long it takes the company to pay its suppliers.
However, there is no element of single line to say how the company purchased in a year. Cost of goods sold represents what is sold, but the company may well more or less bought that was eventually sold. The result will be an increase or a decrease in supplies.
This report gives an indication of how the company is the flow of money and able to repay the debt. The formula looks like this.
The average cost of goods sold / average payableMeasures of short-term liquidity that are used to measure the speed at which a company pays off the coast of its suppliers. The ratio of accounts payable rotation is calculated by taking total purchases from suppliers and dividing by the average number of accounts paid during the same period.
The size of the investor shows how many times a period of the company to pay the amount to pay is average. For example, if the company made $ 100 million in the purchase of the provider of the year and at any time specific holds the average account paid $ 20 million, the ratio of the account accrued turnover for the period was 5 (100 million $ $ 20 million). If the turnover ratio is passed the period of the other, it is a sign that companies take more time to repay its suppliers than before. The opposite is true of increases in turnover ratio, which means that the company pay a supplier on a pace faster.
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