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