Estimates how long, on average, the company takes to pay its trade creditors. The average ratio is calculated as follows:
((Beg. Accts Pay + End. Accts Pay) / 2) * No. of Days in Period
where Accounts Payable is (v2500).
A high ratio does not indicate effective working capital management. High levels also could reflect inadequate cash flow to cover the company's obligations on a timely basis, which potentially could threaten continued purchase of supplies for operations.