Which measure indicates how quickly a company pays its bills?

Which measure indicates how quickly a company pays its bills?

• A. Days receivable
• B. Payable turnover
• C. Return on Capital
• D. Inventory turnover

Answer: (B)

The measure that indicates how quickly a company pays its bills is payable turnover. This financial metric calculates how efficiently a company manages its accounts payable, reflecting the number of times the company pays its suppliers over a specific period. A higher payable turnover ratio suggests that a company pays its creditors more frequently, which can signify strong financial health and efficient cash management. Understanding this metric is crucial for assessing a company's liquidity and operational efficiency. It helps stakeholders determine how well the organization is handling its obligations and whether it maintains a good relationship with suppliers. This can have implications for negotiating terms and securing favorable pricing. Other measures, such as days receivable, focus on how long it takes to collect payments from customers, while return on capital assesses the profitability of investments in assets. Inventory turnover measures how efficiently a company sells and replaces its stock, which does not directly relate to the speed of paying bills. Therefore, payable turnover specifically addresses the question of how quickly a company settles its financial obligations.

The measure that indicates how quickly a company pays its bills is payable turnover. This financial metric calculates how efficiently a company manages its accounts payable, reflecting the number of times the company pays its suppliers over a specific period. A higher payable turnover ratio suggests that a company pays its creditors more frequently, which can signify strong financial health and efficient cash management.

Understanding this metric is crucial for assessing a company's liquidity and operational efficiency. It helps stakeholders determine how well the organization is handling its obligations and whether it maintains a good relationship with suppliers. This can have implications for negotiating terms and securing favorable pricing.

Other measures, such as days receivable, focus on how long it takes to collect payments from customers, while return on capital assesses the profitability of investments in assets. Inventory turnover measures how efficiently a company sells and replaces its stock, which does not directly relate to the speed of paying bills. Therefore, payable turnover specifically addresses the question of how quickly a company settles its financial obligations.