What is the official business definition of Accounts Payable Turnover Ratio Formula?
Accounts payable turnover ratio is a measure that financial managers use to assess the efficiency of their accounts payable (AP) departments. It’s calculated by dividing the cost of goods sold by accounts payable. The resulting number typically falls between 1.0, indicating that a company pays its suppliers quickly and efficiently, and 1.5, which shows that it’s slow to pay its bills. A high AP turnover ratio indicates that a company’s AP department is efficient at processing invoices, while a low number means that invoices are taking a long time to clear through the system.