when the figure for the ap turnover ratio increases the company is paying off suppliers at a faster rate than in previous periods it means the company has plenty of cash available to pay off its short term debts in a timely manner this can indicate that the company is managing its debts and cash flow effectively 
however an increasing ratio over a long period of time could also indicate that the company is not reinvesting money back into its business this could result in a lower growth rate and lower earnings for the company in the long term ideally a company wants to generate enough revenue to pay off its accounts payable quickly but not so quickly that the company lacks the cash needed to take advantage of opportunities to invest in its growth the accounts payable is listed on the balance sheet under current liabilities example of how to use the ap turnover ratiohere s an example of how an investor might consider an ap turnover ratio comparison when investigating companies in which they might invest company a purchased its materials and inventory from one supplier and calculated an ap turnover ratio for the past year with the following numbers during the same year company b a competitor of company a calculated its ap turnover ratio as shown below the investor can see that company b paid off its suppliers at a faster rate than company a that could mean that company b is a better candidate for an investment however the investor may want to look at a succession of ap turnover ratios for company b to determine in which direction they ve been moving that in turn may motivate them to look more closely at whether company b has been managing its cash flow as effectively as possible in addition before making an investment decision the investor should review other financial ratios as well to get a more comprehensive picture of the company s financial health ap turnover ratio vs ar turnover ratiothe accounts receivable turnover ratio is an accounting measure used to quantify a company s effectiveness in collecting its receivables or the money owed to it by its customers the ratio demonstrates how well a company uses and manages the credit it extends to customers and how quickly that short term debt is collected or paid so while the accounts receivable turnover ratio shows how quickly a company gets paid by its customers the accounts payable turnover ratio shows how quickly the company pays its suppliers an industry could have a standard ap turnover ratio that is unique to it limitation of the ap turnover ratioas with all financial ratios it s useful to compare a company s ap turnover ratio with companies in the same industry that can help investors determine how capable one company is at paying its bills compared to others on the other hand a consistently high or increasing ratio especially when compared to the industry standard could alert creditors and investors to a situation in which a company isn t managing its cash properly and failing to reinvest in its growth consequently a high or low ratio shouldn t be taken at face value instead investors who note the ap turnover ratio may wish to do additional research to determine the reason for it 