Accounts Payable Turnover Ratio
An accounting equation that tells you how fast a company pays its bills. The ratio is: total purchases from suppliers divided by average accounts payable.
The number alone tells you little. Look at it compared to prior periods. Is it falling? The company is taking longer to pay its bills. Rising? They’re paying faster. Let’s say Tesla places an order from Goodyear for one million tires that cost $200 a piece. The order is payable in 90 days. Tesla now shows accounts payable of $200 million. That, along with all the other supplies Elon Musk needs to build his space cars, adds up to Tesla’s accounts payable...call it $5 billion.
To tell whether Tesla is doing better or worse with paying suppliers, we’d divide all those supply purchases over a period of time by Tesla’s average accounts payable balance. If Tesla has bought $5 billion in supplies over the last 90 days and has an average accounts payable balance over that period of $1 billion, its AP turnover ratio is 5.
Let’s say it was 10 in the previous 90 days. So Musk cut his turnover in half, but that’s bad. Very bad. Instead of keeping his suppliers paid and his accounts payable low, he’s relying more on credit and taking longer to pay. Although his cars are quiet, suppliers won’t be if he keeps this up.
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finance a la shmoop. what does per-capita mean? well there's poor capita yeah this
guy, how would you like to be named capita and then there's per capita which [man sits under a tree]
just means well technically per head. yep comes from Latin like oh so many
things salsa dressing and dancing among others, the word decapitation comes to [dancing feet]
mind. like what happens when those flying human taxi drones get too far to the
left or when King Henry got tired of a wife. so if that happened often it had [helicopter prop]
throw off the per capita calculations. and same deal if we suddenly had a lot
of two-headed people being born like the aliens in men in black and whole bunch
other Hollywood movies. per capita is a useful metric in a bunch of financial
calculations. a common set is GDP or gross domestic product per capita .like
if you have a ton of GDP say ten trillion dollars from your country [100 dollar bill]
whateverstan, if you only have a million people that's a ton of production
productivity. but if you're say China with well over a billion people well
then it's a much lower GDP per capita. the calculations get quoted when talking
about things like cell phone monthly subscriptions, computer ownership or [people crowd around a cell phone]
particularly rollicking house parties. so yeah the notion of per capita is pretty
important but don't stress if you're not an expert yet. it's a nothing to lose
your head over. [man carries head]
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