Payables turnover measures how quickly a company pays its suppliers. It divides cost of goods sold by average accounts payable. A higher ratio means the company pays suppliers faster. A lower ratio means it takes longer to pay, which can be a sign of either cash flow management (using suppliers as a source of short-term financing) or liquidity problems.
Payables Turnover = Cost of Goods Sold (TTM) / Average Accounts Payable
GeminIQ divides TTM COGS by the average of current and year-ago accounts payable, both from SEC filings.
A: Neither is inherently better. Paying suppliers quickly (high turnover) may earn early-payment discounts and maintain good relationships. Paying slowly (low turnover) preserves cash for other uses. The optimal level depends on the company's negotiating power, discount terms, and cash position. The most useful comparison is against industry peers and the company's own trend.
A: Days Payables Outstanding (365 / Payables Turnover) is subtracted in the cash conversion cycle calculation. Longer payables periods reduce the cash conversion cycle, meaning the company needs less working capital to fund operations.
A: The numerator (COGS vs. cost of revenue) and denominator (accounts payable definitions) are both sensitive to normalization. GeminIQ uses the as-filed values for both.