Question : -------------------ratio indicates the relationship between credit purchases and average trade payables during the year.
Option 1: Trade receivable turnover ratio
Option 2: Trade payable turnover ratio
Option 3: Inventory turnover ratio
Option 4: Current ratio
Answer (1)
24th Jan, 2024
Correct Answer: Trade payable turnover ratio
Solution :
Answer =
Trade payable turnover ratio.
Trade payable turnover ratio = $\frac{\text{Net credit purchases}}{\text{Average trade payables}}$.
The trade payable turnover ratio evaluates the efficiency of paying suppliers by dividing credit purchases by the average trade payables. Higher ratios suggest prompt payment, while lower ratios imply delays.
Hence, the correct option is 2.
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