How do you explain current ratio?

The current ratio compares all of a company’s current assets to its current liabilities. These are usually defined as assets that are cash or will be turned into cash in a year or less, and liabilities that will be paid in a year or less.

How do you interpret accounts payable turnover?

The accounts payable turnover ratio measures how quickly a business makes payments to creditors and suppliers that extend lines of credit. Accounting professionals quantify the ratio by calculating the average number of times the company pays its AP balances during a specified time period.

What does turnover ratio tell you about a company?

A turnover ratio represents the amount of assets or liabilities that a company replaces in relation to its sales. The concept is useful for determining the efficiency with which a business utilizes its assets.

Is a higher accounts payable turnover better?

Accounts payable turnover is the number of times a company pays off its vendor debts within a certain timeframe. Similar to most liquidity ratios, a high accounts payable turnover ratio is more desirable than a low AP turnover ratio because it indicates that a company quickly pays its debts.

What is ideal accounts payable turnover ratio?

Days Payable Outstanding (DPO) = 365 /Accounts payable turnover ratio. Norms and Limits. Payment requirements will usually vary from supplier to supplier, depending on its size and financial capabilities. A high ratio means there is a relatively short time between purchase of goods and services and payment for them.

What is a good payables turnover ratio?

As with most financial metrics, a company’s turnover ratio is best examined relative to similar companies in its industry. For example, a company’s payables turnover ratio of two will be more concerning if virtually all of its competitors have a ratio of at least four.

What is a good number for inventory turnover ratio?

A good inventory turnover ratio is between 5 and 10 for most industries, which indicates that you sell and restock your inventory every 1-2 months. This ratio strikes a good balance between having enough inventory on hand and not having to reorder too frequently.