Ratio help!!!

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Jade95
Jade95 Registered Posts: 50 Epic contributor 🐘
in AAT Level 4 (Level 8 in Scotland)
Hi all

Just a quick question I'm looking at the ratios and I'm a bit confused about the Trade payables collection period ratio.

I've seen two different ratios does anyone know which one to use?

Trade payables/revenue×100

Or

Trade payables/cost of sales × 100

Thanks

Jade

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  • janwal
    janwal Registered Posts: 1,189 Beyond epic contributor 🧙‍♂️
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    Hi Jade

    I have never seen the top one but have seen

    Trade Payables/ Cost of Sales x 100

    or

    Trade Payables/ Purchases x 100

    As too which one to use depends on the information you are given.

    Jan
  • Nps
    Nps Registered Posts: 782
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    Nope, I've never seen the top one either. Are you sure it wasn't for 'receivables days' as that formula uses the revenue?
  • chinnick
    chinnick Registered Posts: 9 Regular contributor ⭐
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    Just think what trade payables relates to. To create a payable there must be a purchase so why would the ratio include revenue?

    In which case the formulas must be TP/Purchases x 100 or TP/COS x 100



    The same for Receivables collection period. Receivables relate to sales so the ratio is

    TR/Sales or Revenue x 100

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