Alright here we go with another ratio. The accounts payable turnover ratio. So accounts payable turnover. Well this is going to relate the amount of generally I'm gonna say cogs most of the time in your class you're gonna use cogs as the numerator. But the technically correct term is purchases. But we're gonna go with cogs is generally what we're gonna use here. And we're gonna relate that to our average accounts payable level. Okay that's the accounts payable turnover and this is a common efficiency ratio. How efficiently are we, how efficient are we at paying off our debts, paying off our accounts payable? Okay so the account payable turnover notice in this, in the formula here I've got purchases or cogs in the numerator. You're gonna want to check with your professor, see his questions. See how he generally how he generally uh tackles these questions. Um But generally like I said you're gonna we're gonna use cogs in this class. Uh Because it's a little less complicated and we're gonna divide that by our average Ap so remember every time we do an average it's gonna be the beginning balance plus the ending balance divided by two. So let me put that in here. This is always how we're gonna do it. Beginning balance plus ending balance divided by two. Okay so we've got an interesting way to calculate our purchases. We can back into it if we're giving a begin if we're given an inventory account. So if we see a balance sheet and we're given two years if we're given last year's balance sheet this year's balance sheet and we have an income statement. Well we can back into our purchases or get a pretty good estimate of it. All right so our inventory T. Account right? We're gonna have some beginning balances a debit and then we're gonna have purchases, we're gonna buy more inventory. And then what's gonna lower the inventory account? Well when we sell inventory right. Cogs. Cogs is gonna lower the account will be left with an ending balance. So if we rearrange those algebraic lee and solve for purchase is what we're going to see that it equals the cogs plus the ending inventory minus beginning inventory. That's equal to our purchases. So we could get purchases for our numerator with that amount of information. But like I said you're generally not gonna do that. You're just gonna have a cogs amount divided by average Ap easy peasy. Alright. So how do we analyze an ap turnover? Well the ap turnover, let me leave it on the screen there. The ap turnover it tells us how many times we're able to pay our ap during the year, how many times we are able to pay ar ap during the year. So if you think about it right we're gonna have some accounts payable balance and every time we purchase it's gonna increase that balance but it's not just gonna keep increasing and increasing. No we're gonna have to pay it off. Right? So we're gonna have some average balance but those purchases keep increasing as we purchase and purchase. So you can imagine that numerator is gonna be bigger than the denominator. Right? Because we're gonna have to be paying off those ap and keep them at some average balance that we have for our company. Right? So how do we compare ap turnover? Well like most ratios we use benchmarking right? Because we have to know in our industry what's a reasonable amount? So we check with our competitors, we check with the industry average and we see how our ap turnover compares to them. All right. And last but not least I want to just mention here that a higher ap turnover the higher your ap turnover. Well it implies you pay off your debts more quickly right? You're able to pay them off more quickly as the as the ratio goes higher. All right. So in general this is a pretty easy formula. Let's go ahead and jump into some practice problems.