Questions and Answers
What does a high Accounts Payable Turnover ratio indicate?
Why might a company have long credit periods with suppliers?
What is the formula for calculating Accounts Payable Turnover?
What can be said about companies that focus on timely payments to suppliers?
Signup and view all the answers
What is a potential drawback of having long credit terms with suppliers?
Signup and view all the answers
Study Notes
Accounts Payable Turnover Overview
- Measures the proportion of a company's purchases made on credit.
- Calculated using the formula: Accounts Payable Turnover = Purchases / Accounts Payable.
Implications of the Ratio
- A high accounts payable figure (denominator) leads to a low turnover ratio.
- Low turnover suggests extended credit periods with suppliers.
Factors Affecting the Ratio
- Extended credit periods may result from strong bargaining power with suppliers.
- Conversely, they may indicate a company's inability to pay debts promptly.
Importance of Timely Payments
- Companies generally aim for timely payments to maintain healthy supplier relationships.
- Relying on long credit periods may be beneficial in the short term but could harm supplier trust in the long run.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Explore the concept of Accounts Payable Turnover, a key financial metric that identifies the proportion of a company's purchases made on credit. This quiz delves into the calculation, implications, and factors that affect this important ratio in financial management.
