Accounts Payable Turnover Ratio

Published on August 01, 2020
Accounts Payable Turnover Ratio is a type of Turnover Ratio that determines the efficiency with which a business is paying to its suppliers. In other words, this ration tells how good a company is in payable the payable or money owed by it. Accounts Payable Turnover Ratio is also known as Trade Payable Turnover Ratio or Creditor’s Turnover Ratio.
$$Accounts\quad Payable\quad Turnover\quad Ratio=$$$$\frac { Net\quad Credit\quad Purchases }{ Average\quad Accounts\quad Payable } $$

Net Credit Purchases = Total Purchase During the Period (Excluding Returns, and Purchases for which payment is made in Cash)
$$Avg.\quad Accounts\quad Payable=$$$$\frac { Opening\quad Creditors+Closing\quad Creditors }{ 2 }  $$

Significance and Interpretation

Accounts Payable Turnover Ratio tells the number of times the payables are paid off over a period.
  • High Accounts Payable Turnover Ratio indicates the company is paying off its payables fast over a period, it is desirable to have a high value of this ratio.
  • Low Accounts Payable Turnover Ratio indicates that the company is not able to pay its payables properly. Low values of this ratio are not desirable/healthy for a company.
  • It must be noted that while comparing two companies on the grounds of Accounts Payable Turnover Ratio, they should be of the same industry.


Example 1: 

Use the following data of ABC Ltd, to calculate its Accounts Payable Turnover Ratio.
  • Total Purchase during FY = Rs. 1500000.00
  • Purchases return during the FY = 2% of Total Purchase
  • Purchases in Cash = 15% of Total Purchase
  • Accounts payable at the Beginning of FY = Rs 170000.00
  • Accounts Payable at the End of FY = Rs 430000.00 


Net Credit Purchase = Total Purchase – Purchase Returns – Purchase in Cash
 (1500000 – 30000 – 225000)
 Rs. 1245000.00
$$Avg.\quad Accounts\quad Payable=$$$$\frac { Opening\quad Creditors+Closing\quad Creditors }{ 2 }  $$
Average Accounts Payable = (430000 + 170000) / 2
⇨ Rs. 300000.00

Accounts Payable Turnover Ratio = Net Credit Purchases / Average Accounts Payable
⇨ 1245000 / 300000 = 4.15

Hence, Accounts Receivable Turnover Ratio = 4.15

About me

ramandeep singh

My name is Ramandeep Singh. I authored the Quantitative Aptitude Made Easy book. I have been providing online courses and free study material for RBI Grade B, NABARD Grade A, SEBI Grade A and Specialist Officer exams since 2013.

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