Q: Can you calculate any accounts payable turnover ratio at all for a service company or for companies that have no cost of goods sold?
A: If a company does not have inventory or cost of goods sold, then accounts payable and accrued expenses must represent unpaid operating expenses. Therefore, the ratio calculation would be as follows:
- 365 x (Accounts Payable + Accrued Expenses) / Operating Expenses (excluding non-cash charges)
Course overview: Ratios and Messages about Profitability and Cash Flow