In short
Accounts payable turnover is purchases (or cost of goods sold) divided by average accounts payable. Dividing 365 by it gives days payables outstanding, the average time taken to pay suppliers.
Key takeaways
- Paying later conserves cash and shortens the cash conversion cycle.
- Stretching payables too far can damage supplier relationships and lose discounts.
- A sudden rise in days payables can signal cash strain.
Where it's tested
BAR: Financial Statement Analysis — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company's days inventory outstanding is 60, days sales outstanding is 45 and days payables outstanding is 30. What is its cash conversion cycle?