accounts (noun, ac-counts, \ əˈkaʊnts \) payable (adjective, pay-a-ble, \ ˈpeɪəbl \) total (adjective, to-tal, \ ˈtoʊtl \) debt (noun, debt, \ det \) ratio (noun, ra-ti-o, \ ˈreɪʃioʊ \)
Definition: is the correlation between outstanding vendors’ bills and the company’s overall debt in a specified accounting period. The ratio is determined to be high if it stands at 0.5 or more, and may serve as a signal that a company has to take an additional loan to evade any possible problems with its suppliers and business partners. The ratio can be calculated by following this formula: “sum of all accounts payable” divided by “total debt.”
In a Sentence:
- Due to the increased a/p to total debt ratio, the firm was forced to take an unplanned loan of $30,000.
- After we’ve received the payment for the latest shipment, we were able to settle all a/p by the end of the accounting period, thus immensely improving the accounts payable to total debt ratio.
- The supplier kept calling the manager every few hours regarding payment, but there was little he could do considering the poor a/p to total debt ratio his company had.
Synonyms and related words: total debt, total assets, accounts payable, days payable outstanding, accounts payable turnover ratio
