accounts (noun, ac-counts, \ əˈkaʊnts \) payable (adjective, pay-a-ble, \ ˈpeɪəbl \) sales (noun, sales, \ ˈseɪlz \) ratio (noun, ra-ti-o, \ ˈreɪʃioʊ \)
Definition: is a figure that represents the correlation between outstanding suppliers’ bills and the sales revenue that occurred during a selected accounting period. This ratio is considered to be bad if it’s near the 1.0 mark, and in several industries that is judged as a sign that a company is suffering from liquidity issues. On the other hand, if the number is substantially larger, then the firm is considered to be financially secure. The formula used to calculate the exact number is: “sum of all accounts payable” divided by “total sales revenue.”
In a Sentence:
- Markwood Inc. was able to receive the necessary loan thanks to the satisfying accounts payable to sales ratio which lifted the firm’s credibility in the eyes of the bank.
- Recently, our company has witnessed a change in the A/P to sales ratio that reveals our cash problems.
- The board made a decision to deny TrueLight’s request due to their poor A/P to sales ratio as it signals their inability to meet short-term obligations.
Synonyms and related words: sales ratio, sales revenue, accounting period, liquid assets, total assets to sales ratio