1. What is Payables Turnover?

The Payables Turnover ratio measures how quickly a company pays its suppliers. It indicates the number of times a company pays off its accounts payable during a period. A higher ratio suggests quicker payment to suppliers.

2. How Does the Calculator Work?

The calculator uses the Payables Turnover formula:

Where:

• Cost of Goods Sold — Total cost of producing goods sold during the period
• Average Accounts Payable — Average balance of accounts payable during the period

Explanation: The ratio shows how many times a company pays off its average payable balance during the measured period.

3. Importance of Payables Turnover

Details: This ratio is important for assessing a company's short-term liquidity and how it manages its cash flow and supplier relationships. It helps creditors evaluate payment terms and creditworthiness.

4. Using the Calculator

Tips: Enter Cost of Goods Sold and Average Accounts Payable in dollars. Both values must be positive numbers. The result shows how many times payables are turned over during the period.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Payables Turnover ratio?
A: It varies by industry. Higher ratios indicate faster payment to suppliers, while lower ratios suggest longer payment periods. Compare with industry averages.

Q2: How is Average Accounts Payable calculated?
A: Typically calculated as (Beginning Accounts Payable + Ending Accounts Payable) / 2 for the period.

Q3: What if the ratio is too high?
A: Extremely high ratios may indicate very short payment terms or missed opportunities to use supplier credit effectively.

Q4: How does this relate to Days Payable Outstanding?
A: Days Payable Outstanding = 365 / Payables Turnover. It shows the average number of days taken to pay suppliers.

Q5: Should purchases be used instead of COGS?
A: Some analysts prefer using purchases when available, as it more directly relates to accounts payable. COGS is commonly used when purchase data isn't available.