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Wednesday, May 4, 2011

Average Payment Period Ratio Analysis

Definition: Average Payment Period ratio is used to measure the rate at which the company is able to pay its creditors. It is also known as "Creditors payment period" or "Average credit taken".

Formula:
Average Payment Period = (Average Trade Creditors / Net Credit Purchases) * No. of Days

Example 1:
If credit purchases is $77,000; Return outwards $7,000; Trade creditors $9,000; Bills Payables

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