What formula is used to calculate Accounts Payable Turnover?

The formula used to calculate Accounts Payable Turnover is COGS/Average Accounts Payable.

Accounts Payable Turnover is a financial metric that measures how efficiently a company pays its suppliers. It indicates how many times a company pays off its accounts payable during a specific period, which can be useful for assessing liquidity and purchasing efficiency.

Cost of Goods Sold (COGS) is used in the formula because it represents the direct costs incurred in producing goods sold by a company, and it reflects the company’s operational efficiency and purchasing practices. By dividing COGS by Average Accounts Payable, the resulting ratio shows how many times during a set time frame (such as a year) the company has settled its outstanding payables.

Using COGS rather than total sales or net income provides a more pertinent view of how well a company manages its short-term obligations related to purchasing goods. This is because COGS correlates directly to the inventory the company maintains and hence the cost involved in the company's production processes.

Other options are not applicable or relevant for calculating the Accounts Payable Turnover ratio. For example, net income does not pertain to suppliers or purchases, while Average Accounts Receivable is relevant for measuring how efficiently a company collects