Receivables to Payables Ratio

From Financial Literacy Wiki

Receivables to Payables Ratio is obtained by taking the trade receivables divided by trade payables. This ratio shows that for every dollar of credit taken from suppliers, the company extended how many dollars of credit to clients. This Receivables to Payables Ratio should remain fairly constant throughout the years.

The magnitude of the ratio greatly depends on the industry the company under analysis is in. Thus when looking at this ratio, it would be advisable to compared with other companies that are in similar industry.

Any major changes experienced should be compared with other companies. If other companies does not experience any major changes, it is likely that there are changes in the credit policies either in the credit extended or the supplier's finance.