The accounts payable turnover ratio can show the rate at which a particular company is repaying different types debt financial obligations. It is worth noting that consideration of debt parameters in the credit segment is best carried out with a simultaneous assessment of receivables.
This coefficient can show current information about the number of successful debt repayments for the reporting period. The higher the value of this indicator, the higher the speed of repayment of obligations to creditors.
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To understand the features of the calculation, it is necessary to familiarize yourself with the economic essence of the concept, as well as with the definition of financial flows of specific organizations and with persons who may find it useful this procedure calculation.
Economic essence
In cases where the receivable turnover is higher than the creditor turnover, then this can be considered a positive aspect of the organization’s activities
Who might need a quote?
It is especially worth getting acquainted with those who, first of all, may benefit from the analysis given coefficient. The parameter is used to determine ways to increase the solvency of the enterprise.
That is why it is often used in reports of the following groups of people:
- general director;
- financial directors and managers;
- in the legal department of the organization;
- the organization's creditors and suppliers;
- company investors.
The accounts payable turnover ratio reflects how quickly a company pays off its debts. Designation in international standards – Accounts payable turnover ratio. The indicator is usually considered in conjunction with the accounts receivable turnover ratio. Used by internal services of the enterprise, potential creditors and investors.
Economic sense and normative significance
The accounts payable turnover ratio shows how many times in the analyzed period the company paid off with creditors. The indicator is calculated for a year, quarter or month.
The assessment of the ratio indirectly indicates the liquidity and solvency of the company. First of all, this indicator is associated with credit risk. The higher it is, the sooner the company pays off its debts - the higher its solvency.
The company has accounts payable in relation to sellers of materials necessary for production and sale, the state and its own employees, and other companies.
There is no specific standard value for the turnover ratio. But the higher the indicator, the better the liquidity. However, too high values reduce profitability. What is not good.
It is customary to evaluate two turnover ratios at once: accounts payable and accounts receivable. It’s good when the first indicator is greater than the second. Such results indicate an increase in the profitability of the enterprise: the company has more free money for doing business.
Accounts payable turnover ratio: balance sheet formula
Kkr = revenue for the analyzed time / medium size accounts payable.
We find the average by dividing the sum of all loans at the beginning and end of the period by 2.
Let's substitute the lines from financial statements:
Kkr = line 2110 / (line 1520np + line 1520kp) * 0.5.
The value for the numerator is taken from the income statement, for the denominator - from the balance sheet.
Necessary data from the balance sheet (form filled out in Excel):
Required figures from the income statement:
On a separate sheet we draw up a table for calculating the coefficient. In the formula we substitute links to cells with the corresponding data:
Figures for 2011 and 2012 taken arbitrary.
Now let’s calculate the accounts payable turnover ratio in days.
Accounts payable turnover formula
To do this, you need to convert the calculated coefficient into the turnover period. The new indicator will reflect the average number of days that a company needs to pay off loans.
The conversion formula looks like this:
What do these numbers mean? For example, in 2012, the average duration of one turnover of accounts payable was 48.60 days. This is approximately how much a company needs to pay off all its debts with creditors.
For clarity and analysis of dynamics, we display on the graph:
The maximum liquidity of the enterprise in the analyzed period was in 2011, since the speed of debt repayment (compared to 2015) was almost 3 times higher.
Let's show the turnover period on the graph:
The longest period for repaying accounts payable in 2015 was 86.70 days. This means:
- it is possible that the company is experiencing difficulties in selling products and generating revenue;
- with a significant increase in the tax burden, volumes of mandatory payments to the budget, etc.
To more accurately diagnose problems, you need to calculate and look at other indicators business activity.
Definition
Accounts payable turnover Accounts payable turnover ratio is an indicator of how quickly an organization repays its debts to suppliers and contractors.
Accounts payable turnover (nuances)
This ratio shows how many times (usually per year) the company has repaid the average amount of its accounts payable.
Like accounts receivable turnover, accounts payable turnover is used in valuation cash flows organization, calculation efficiency.
Calculation (formula)
Accounts payable turnover is calculated as the ratio of the cost of acquired resources to the average amount of accounts payable for the period (usually not all, but only those associated with the company’s operating activities).
Accounts payable turnover (ratio) = Purchases / Average accounts payable
Since the purchase indicator is not contained in the financial statements, a simplified calculation option is used:
Purchases = Cost of Sales + (Ending Inventory – Beginning Inventory)
In Russian practice, a more conventional calculation option is often used, when revenue for the period is taken instead of purchases.
You also need to pay attention that the numerator and denominator of the formula are comparable, taking into account VAT. Those. if Purchases are taken without VAT (and according to the simplified formula above this will happen), then it is logical to clear accounts payable from VAT.
In addition to calculating the coefficient (“number of revolutions”), it is customary to calculate turnover in days:
Accounts payable turnover in days = 365 / Accounts payable turnover ratio
The result is the average number of days that supplier invoices remain unpaid.
Normal value
Accounts payable turnover strongly depends on the industry and the scale of the organization’s activities. For creditors, a higher turnover ratio is preferable, while the organization itself is more profitable with a low ratio, which allows it to have the balance of unpaid accounts payable as a free source of financing its current activities.
Due to a significant increase in revenue from product sales (+24%), the values of all asset turnover indicators, as well as turnover, increase equity and accounts payable. At the same time, the corresponding turnaround times and the load factor of these assets are reduced. Consequently, the reporting period is characterized by an increase in profits and production profitability, efficient use of working capital in the enterprise and an improvement in its financial position.
2.4 Assessment of financial results and profitability of the enterprise
The most important indicators reflecting the final financial results of an enterprise are profit and profitability.
The calculation of indicators for assessing the level of dynamics of profit indicators is carried out using formulas (38 - 44), and the values of these indicators themselves are presented below in Table 7, while the values of the previous period are already given.
Gross profit (VP report):
Business expenses (KR report):
Administrative expenses (UR report):
Profit from sales (PP report):
According to the initial data for the reporting period, we have:
interest receivable: PKP report = 480 (thousand.rub.);
interest payable: PKU report = 45230 (thousand.rub.);
non-operating income: GNI report = 23420 (thousand.rub.);
non-operating expenses: VNR report = 21605 (thousand.rub.);
deferred tax assets: SHE report = 95700 (thousand.rub.);
postponed tax obligations: IT report = 6500 (thousand.rub.);
current income tax: consumer goods report = 270290 (thousand.rub.).
Net profit (Pch) = retained earnings (NP):
Profit before tax (PDN):
It is also true that
Where DUO- income from participation in other organizations;
UNDER- other operating income;
POR- other operating expenses.
Using formula (44) and the values of its components found above, we determine the values of the unknowns ( DUO, UNDER, POR) for the previous and reporting periods. The results of all calculations are summarized in Table 7.
Table 7 - Analysis of enterprise profit
Indicators
For the previous year, thousand rubles.
For the reporting year, thousand rubles.
Deviation of the reporting period from the previous one
amount, thousand rubles
rate of change, %
1. Income and expenses for common types activities:
Revenue (net) from the sale of products (less VAT, excise taxes and similar mandatory payments)
Cost of products sold
Gross profit
Business expenses
Administrative expenses
Profit (loss) from sales
2. Other income and expenses
Interest receivable
Interest payable
Income from participation in other organizations
Other operating income
Other operating expenses
Non-operating income
Non-operating expenses
3. Profit (loss) before tax
Deferred tax assets
Deferred tax liabilities
Current income tax
4. Net profit (loss)
According to Table 7, it can be seen that during the reporting year, due to a significant increase in revenue, sales profit increased significantly (+52.14%), the increase in profit before tax was 10.13%, and net profit increased by 10%. Overall, this indicates successful work enterprises for this period. The reporting year is also characterized by an increase in income from participation in other organizations (+11.27%) and other operating income (+6.46%). Calculation of profit before tax and selection of coefficients showed that other operating expenses of this enterprise increased significantly (+43.92%).
Fixed costs
where are fixed costs per ton of product;
KMR fast- constant part of commercial expenses (Appendix B);
UPR- administrative expenses.
Fixed and variable parts of costs, calculated on the basis of Table 5, are shown in Appendix D.
Variable costs (Z fast)
Marginal income (MD):
Profit (P):
The obtained profit values completely coincide with the sales profit values shown above in Table 7, therefore, this calculation was made correctly.
Critical volume of production (sales) (Q cr) is the volume of production (or sales of products) at which the enterprise receives neither profit nor loss, i.e. revenue from product sales is equal to its full cost. Determined by the formula:
Where C units. - selling price per unit of production, rub./unit;
Z lane units. - variable costs per unit of production, rub./unit.
Marginal Income Ratio characterizes him specific gravity in sales revenue and is calculated using the formula:
Enterprise profitability threshold (PR) shows the threshold revenue that ensures break-even operation of the enterprise, and is determined by the formula:
It is advisable to compare how many times the marginal income exceeds the profit, i.e. define the force of the production lever (SVPR) according to the formula:
Where P pr- profit from sales.
The higher SVPR, the greater the entrepreneurial risk associated with this enterprise.
Financial strength margin (ZFP):
ZFP = runway - PR,(53)
ZFP before = runway before - PR before = 8640000 - 3986235,34 = 4653764,66 (thousand rubles)
ZFP report = runway report - PR report = 10713600 - 3912091,40 = 6801508,60 (thousand rubles)
The calculation results are shown below in Table 8.
Table 8 - Financial position of the enterprise
Indicators
Previous year
Reporting year
Change
1. Revenue from product sales, thousand rubles.
2. Variable costs, thousand rubles.
3. Marginal income, thousand rubles.
4. Fixed costs, thousand rubles.
5. Profit, thousand rubles.
6. Profitability threshold, thousand rubles.
7. The force of influence of the production lever, fraction of units.
Critical production volume, units.
Marginal Income Ratio
Margin of financial strength, thousand rubles.
Based on the results shown in Table 8, the following main changes in the indicators of the reporting year compared to the previous one can be noted:
ѕ due to a greater change in the marginal income ratio (+4.1%) compared to the change in fixed costs (+2.16%), the enterprise profitability threshold decreased by 1.86%;
* the force of influence of the production lever decreased by 15.16%, therefore, the entrepreneurial risk of this enterprise decreased;
ѕ due to a significant increase in revenue from product sales (+24%) and a slight decrease in the profitability threshold (-1.86%), the financial strength of the enterprise significantly increased (+46.15%).
The economic efficiency of enterprises is expressed by profitability indicators. Profitability is the ratio of profit expressed as a percentage to a certain type of resource or cost.
Return on sales (R pr) shows how much profit the enterprise has from each ruble of products sold and is determined by the formula:
Profitability of core activities (R basic):
Return on Assets (Cancer):
Where P h- net profit of the enterprise.
Return on current assets (R OA):
Return on equity (R SK) shows the amount of profit on invested capital and is determined by the formula:
An indicator reflecting the efficiency of using funds invested in an enterprise is return on investment (Rinv.), calculated by the formula:
Where WB Wed -average value of balance sheet currency for billing period(average balance (total));
KO Wed- the average amount of short-term liabilities for the billing period.
From the calculations presented above, it can be seen that due to an increase in revenue and profit, the profitability of sales (+2.6%) and core activities (+3.65%) increased. Return on assets and equity declined slightly due to slight growth net profit(compared to the average values of current assets and cost of equity capital). In the reporting year, also due to the relatively small change in net profit, there was a decrease in return on investment (-1.93%), which indicates a slight decrease in the efficiency of using funds invested in this enterprise.
2.5 Assessing the liquidity and solvency of the enterprise
The solvency of an enterprise is characterized by its ability and ability to timely and fully fulfill its payment obligations to partners and the state. Solvency directly affects the forms and conditions of implementation commercial transactions, including the possibility of obtaining credits and loans.
Liquidity is determined by the ability of an enterprise to quickly transform its assets (property) into cash. It is also characterized by the presence of liquid funds in the form of cash balances on hand, cash in bank accounts and easily salable elements of current assets (for example, short-term securities).
Short-term liabilities may include obligations of varying degrees of urgency. The most urgent obligations of the enterprise (payment due in the current month) must be compared with the value of assets that have maximum liquidity (money that is easily realizable). securities etc.). And part of the urgent obligations that remain uncovered must be balanced by less liquid assets - receivables of enterprises with a stable financial position, easily sold reserves, etc.
Current ratio(total coverage ratio) ( TO tl): allows you to determine to what extent current assets cover short-term liabilities:
whereOA - current assets (the result of the second section of the balance sheet asset);
KO- short-term liabilities (result of the fifth section of the balance sheet liabilities, with the exception of the line “Deferred income”).
At the beginning of the previous year:
At the beginning of the reporting year:
At the end of the reporting year:
According to methodological provisions by assessing the financial condition of the enterprise TO tl must be greater than 2. At this enterprise, this condition is met in all periods considered.
Adjusted liquidity ratio(intermediate coverage ratio) (K.l.): shows what part of current liabilities can be repaid not only from available funds, but also from expected revenues for products shipped, work performed or services rendered:
Where DS- funds of the enterprise;
FSC- short-term financial investments;
DZ- accounts receivable of the enterprise.
At the beginning of the previous year:
At the beginning of the reporting year:
At the end of the reporting year:
The reliability of the conclusions based on the results of calculating this coefficient largely depends on the “quality” of the receivables (terms of formation, financial situation of the debtor, etc.).
Absolute liquidity ratio(urgency factor) ( TO al): shows how much of the current debt can be repaid as of the balance sheet date or other specific date ( TO al should be 0.2 0.5):
At the beginning of the previous year:
At the beginning of the reporting year:
At the end of the reporting year:
Overall, the indicators TO al in the periods under consideration are rounded equal to the minimum acceptable value of this coefficient (0.2).
Net working capital(CHOC):
CHOC = OA - KO,(63)
At the beginning of the previous year:
CHOC = 2288184 - 965916 = 1322268(thousand rubles)
At the beginning of the reporting year:
CHOC = 2871478 - 1223556 = 1646584(thousand rubles)
At the end of the reporting year:
CHOC = 3158627 - 1345912 = 1811245(thousand rubles)
This enterprise has net working capital (current assets exceed short-term liabilities), which in the periods considered increases over time.
Maneuverability coefficient (TO pl): shows what part of own funds is invested in the most mobile assets and is calculated using the formula:
Where SK- the enterprise’s own capital (the result of the third section of the balance sheet liabilities).
At the beginning of the previous year:
At the beginning of the reporting year:
At the end of the reporting year:
Over the periods considered, the enterprise’s agility remains virtually unchanged.
Provision ratio of own working capital (TO o.s.s.): it characterizes the presence of the enterprise’s own working capital necessary for its financial stability and is determined by the formula:
Where IA, IIA- the results of the first and second sections of the balance sheet asset, respectively;
IIIP- the result of the third section of the liabilities side of the balance sheet.
At the beginning of the previous year:
At the beginning of the reporting year:
At the end of the reporting year:
Indicator TO o.s.s. in the periods under review exceeds the minimum permissible value (0.1), therefore, this enterprise is very solvent.
Solvency recovery (loss) coefficient(TO pl) is calculated using the formula:
Where TO t.l.n. , TO t.l.k. - the value of the current liquidity ratio at the beginning and end of the reporting period, respectively;
T- duration of the reporting period, months;
U- period of restoration (loss) of the enterprise’s solvency (when calculating the solvency restoration coefficient U=6 months, when calculating the coefficient of loss of solvency U=3 months).
This enterprise is solvent, therefore, it is necessary to calculate the coefficient of loss of solvency at the end of the reporting year:
Meaning TO pl>1, therefore, this enterprise will not lose its solvency in the next three months.
Despite a slight decrease in some liquidity ratios in the reporting period compared to the previous one, in general, almost all indicators are within their acceptable values, which corresponds to the successful activities of this enterprise.
2.6 Overall assessment of the effectiveness of financial and economic activity enterprises
A general assessment of the financial and economic activities of an enterprise can be given using the following indicators:
- 1) efficiency of use of fixed assets and labor resources (capital productivity, capital intensity of products, capital-labor ratio, labor productivity);
- 2) overall efficiency of economic activity (reinvestment ratio, equity growth rate, economic growth rate, profitability and profitability indicators (see Clause 2.4));
- 3) indicators for assessing business activity (see Clause 2.3);
- 4) indicators for assessing liquidity and solvency (see Clause 2.5).
In this subsection we will calculate indicators that were not presented earlier.
Capital productivity (F O) is determined by the formula:
Where S Wed - average annual cost of fixed assets, rub.
Substituting the values of formula (64), we obtain:
Product capital intensity(F e) is the inverse value of capital productivity, which is calculated using the formula:
Capital-labor ratio (F tr) shows the cost of fixed assets per operating enterprise and is calculated using the formula:
Where CR Wed - average number of employees for the billing period.
Labor productivity (P T) is determined by the formula:
Reinvestment rate(TO RI) reflects the enterprise's profit distribution policy. The higher this ratio, the higher the economic growth of the company. It is determined by the formula:
Where P RI- reinvested profit.
Equity growth rate (KR SK) shows the growth of equity capital relative to its value at the beginning of the reporting period and is calculated using the formula:
Where SK beginning And SK con- the organization’s own capital at the beginning and end of the billing period (total for section 3 in Appendix A).
The economic growth coefficient (EGR) is determined by the formula:
TO ER = P SK TO RI KR SK (74)
TO ER(pre) = P SK(prev) TO RI(prev) KR SK(prev) = 0,3969 0,25 1,251 = 0,1241
TO ER(otch) = P Scotch) TO RI(report) KR Scotch) = 0,3742 0,30 1,100 = 0,1235
The calculation results for the above indicators are presented in Table 9.
Table 9 - Indicators of efficiency of financial and economic activities of the enterprise
Indicators
Previous year
Reporting year
Growth rate, %
1. Capital productivity, rub./rub.
2. Capital intensity of products, rub./rub.
3. Average number of employees, people.
4. Labor productivity, (thousand rubles/year)/person.
5. Capital-labor ratio, thousand rubles/person.
6. Reinvestment rate
7. Equity growth rate
8. Economic growth rate
Based on the results presented in Table 9, the following conclusions can be drawn about changes in the efficiency indicators of the financial and economic activities of the enterprise in the reporting year compared to the previous one:
ѕ due to a significant increase in sales revenue (+24%) compared to the average annual cost of fixed assets (+16.2%), the capital productivity of the enterprise increased (+6.71%), and capital intensity decreased (-6.29%);
* due to reduction average number working (-1.58%), an increase in revenue from product sales and the average annual cost of fixed assets, the values of productivity indicators and capital-labor ratio increased by 25.99% and 18.07%, respectively;
ѕ a decrease in the growth coefficients and return on equity capital (-12.06% and -5.72%, respectively), was reflected in the economic growth coefficient of the enterprise, the value of which decreased by 0.5%.
Explanation of the indicator
Accounts Payable Turnover Ratio (English equivalent - Accounts Payable Turnover, Times) is an indicator of business activity that indicates the number of turnovers that accounts payable made during the year. By comparing the turnover of accounts payable and receivable, you can determine the quality of the company’s commercial (commodity) lending policy. The excess of accounts payable over accounts receivable means that the company uses funds from creditors as a source of financing for its debtors, and part of the money is used by the company to finance its other operations. The indicator is calculated as the ratio of cost to the average annual amount of accounts payable. The result of the calculation shows how many times the company has repaid its obligations to suppliers, contractors, etc. during the study period.
Standard value of the accounts payable turnover indicator:
According to the Rosselkhozbank methodology, the following value is considered normative:
Table 1. Standard value of the accounts payable turnover indicator by sector of activity, once a year
Source: Vasina N.V. Modeling the financial condition of agricultural organizations when assessing their creditworthiness: Monograph. Omsk: Publishing house of NOU VPO Omga, 2012. p. 49.
However, do not forget that the standard value may differ depending on the specific type of activity of the company and it is best to compare the current situation in the field of accounts payable management with competitors. It is also worth considering the indicator in dynamics and assessing its changes over the period.
It is worth noting that a high or low value of the indicator can have several consequences. Some authors say that a decrease in the indicator is a good thing, since the company has the opportunity to finance its activities from a free source - from suppliers and contractors. However, this is not entirely true. If payment delays occur consistently, suppliers and contractors will include this risk in the price of their goods. Therefore, low accounts payable turnover may have negative medium-term consequences. If this does not happen and the price level does not change, then it is beneficial for the company to have a low turnover of accounts payable.
Directions for solving the problem of finding an indicator outside the standard limits
First, you need to decide what is the criterion for the optimal value of the indicator. For development good relations It is advisable to increase payment discipline with suppliers. If the company is an important client, and suppliers do not have tools for collecting penalties or fines for the long-term use of their resources, then you can continue to use them.
Formula for calculating the accounts payable turnover ratio:
Accounts payable turnover ratio = Cost (amount of purchases) for the period / Average annual amount of accounts payable (1)
The average annual amount of accounts payable can be calculated as follows:
Average annual volume of accounts payable (most the right way) = Sum of accounts payable values at the end of each working day / Number of working days (2)
Average annual accounts payable (if only monthly data is available) = Sum of accounts payable values at the end of each month / 12 (3)
Average annual volume of accounts payable (if only annual data is available) = (Accounts payable at the beginning of the year + Accounts payable at the end of the year) / 2 (4)
An example of calculating the accounts payable turnover ratio:
Company OJSC "Web-Innovation-plus"
Unit of measurement: thousand rubles.
Accounts payable turnover ratio (2016) = 793/ (78/2+88/2) =9.55
Accounts payable turnover ratio (2015) = 834/ (88/2+89/2) = 9.42
The data shows that accounts payable turnover was stable during 2015-2016. The value of the indicator fluctuates between 9.42-9.55 revolutions per year. Comparing the amount of accounts payable and accounts receivable, we can summarize that the company uses accounts payable to finance its own debtors, and also uses part of these funds to finance other assets.
