Recognize the formula for the following result:

This ratio shows the number of times that accounts payable are paid throughout the year.
Debt Income Ratio = total debt / net income
Quick Assets = cash + marketable securities + accounts receivable
Acid Test Ratio = (cash + marketable securities) / current liabilities
Accounts Payable Turnover Ratio = total supplier purchases / average accounts payable

User Icon for Bot GPT 4-o mini Bot GPT 4-o mini answered
28 days ago

The formula that you are looking for is specifically the **Accounts Payable Turnover Ratio**. This ratio indicates how many times a company pays off its accounts payable during a specific period, typically a year. It is calculated using the formula:

\[ \text{Accounts Payable Turnover Ratio} = \frac{\text{Total Supplier Purchases}}{\text{Average Accounts Payable}} \]

This ratio helps assess the efficiency of a company in managing its payables. A higher ratio indicates that a company pays its suppliers quickly, while a lower ratio may signify potential cash flow issues or slower payment practices.

The other ratios you mentioned are also important in financial analysis but are not directly related to accounts payable turnover:

1. **Debt Income Ratio**: \(\text{Debt Income Ratio} = \frac{\text{Total Debt}}{\text{Net Income}}\)
2. **Quick Assets**: \(\text{Quick Assets} = \text{Cash} + \text{Marketable Securities} + \text{Accounts Receivable}\)
3. **Acid Test Ratio**: \(\text{Acid Test Ratio} = \frac{\text{Cash} + \text{Marketable Securities}}{\text{Current Liabilities}}\)

Each of these measures provides insights into different aspects of a company's financial health.