How is Accounts Payable Turnover calculated?

Accounts Payable Turnover is a financial metric that measures how efficiently a company pays its suppliers. The calculation focuses on the cost of goods sold (COGS) for the period and the average accounts payable balance to determine how many times a company pays off its accounts payable during that period.

Calculating Accounts Payable Turnover using COGS provides insight into the relationship between the company's production costs and its payables. By dividing COGS by the average accounts payable, the turnover ratio highlights how quickly a business is settling its debts with suppliers, which can reflect on the business's cash flow management and creditworthiness. A higher turnover ratio may indicate that the company is efficiently managing its payables, whereas a lower ratio could suggest potential liquidity issues or that the company is taking longer to pay its suppliers.

The other options involve unrelated metrics: net sales, total liabilities, or total assets, which do not directly address the efficiency of a company’s payables. Thus, relying on the cost of goods sold in conjunction with accounts payable gives the necessary perspective on supplier payment practices, aligning perfectly with the purpose of calculating this turnover ratio.