![]() When making conclusions on the accounts payable turnover values analysis the current situation should necessarily be taken into account. Resolving the problems with the accounts payable turnover exceeding the normative range: However, if this isn't happening the company is interested in maintaining the low accounts payable turnover. That's why low accounts payable turnover may have negative medium term consequences. In case of constant payment delays, creditors and suppliers will include the risk to the price of their goods. ![]() Some authors state that a decreasing trend of this ratio is a good sign since the company has the possibility to finance its activity from the free source of finance - funds of creditors and suppliers. Should be mentioned that the excessively high or low accounts payable turnover value may have a few consequences. Also, it would be useful to analyze the dynamics of the ratio and evaluate its changes during the analyzed period. That's why it is better to compare the current speed of the company's accounts payable processing with its main competitors. Should be remembered that they still may vary even for enterprises within one industry. Normative values for the inventory turnover (times) highly depend on the industry. ![]() The result of the computation reflects the number of the accounts payable turns during the analyzed period. The ratio can be computed by dividing the cost of goods sold by average accounts payable. ![]() Excess of the accounts payable over the accounts receivable means that the company uses creditors' funds as a source of financing its clients and other debtors, and part of the money is being used by a firm for financing its operations. By comparing accounts payable turnover and accounts receivable turnover one can understand the quality of company’s credit policy. Accounts Payable Turnover (Times) – an activity ratio measuring how many times per year the company pays its average debt to suppliers (creditors). ![]()
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