A financial ratio that relates the cost of goods sold to accounts payable. This ratio is calculated by dividing the cost of sales by the amount of short-term obligations at a given point in time or for a specific period of time. This ratio measures the speed with which a firm pays its suppliers and other short-term creditors. The higher the turnover ratio is, the faster the firm is paying its bills. If the ratio is declining over time, this indicates a slowing ability to pay, and that may imply a deteriorating financial condition. However, a too high ratio may indicate that suppliers are applying a very restricted credit policy by demanding very speedy payments.
The accounts payable turnover ratio is also known as a sales-to-payables ratio.
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