Trade payables turnover ratio = Average trade payables

Trade payables turnover ratio = Average trade payables Net credit purchases = Total credit purchases – Purchases returns Opening trade payables + Closing trade payables Average trade payables = Trade payables = Trade creditors + Bills payable Greater the trade payable turnover ratio, better is the efficiency of the management in managing trade payable as it indicates that amount due to suppliers are settled quicker. Tutorial note In the absence of opening trade payables, closing trade payables can be taken instead of average trade payables. Credit payment period It is the average time taken by the business for payment of accounts payable. Lesser the credit payment period, greater is the efficiency of the management in managing accounts payable as it indicates quicker settlement of trade payables. It is calculated as follows: (in days) (in months) Number of days in a year Credit payment period = Trade payables turnover ratio Number of months in a year Credit payment period = Trade payables turnover ratio Illustration From the following figures obtained from Kalpana Ltd, calculate the trade payables turnover ratio and credit payment period (in days). Credit purchases during – , , Trade creditors as on . . Trade creditors as on . . , Bills payable as on . . , Bills payable as on . . , Net credit purchases , , Trade payables turnover ratio = times Average trade payables , = Opening trade payables + Closing trade payables Average trade payables = ( , + , ) + ( , + , ) , Number of days in a year payment period = = days. Trade payables turnover ratio (iv) Fixed assets turnover ratio Fixed assets turnover ratio gives the number of times the fixed assets are turned over during the year in relation to the revenue from operations. This ratio indicates the efficiency of utilisation of fixed assets.