Trade Payables Turnover Measures Supplier Payment Time

Steps:

• Identify the question: It asks for the ratio measuring average time to pay suppliers, which relates to accounts payable efficiency.
• Recall key ratios: Liquidity ratios (A, B) assess short-term solvency; turnover ratios (C, D) measure operational efficiency.
• Focus on payables: Trade payables turnover specifically evaluates how quickly a business pays creditors.
• Calculate payment period: Divide 365 by the turnover ratio to get average days to pay.

Why C is correct:

• Trade payables turnover = Cost of goods sold / Average trade payables; the reciprocal (365 / turnover) gives average payment days to suppliers.

Why the others are wrong:

• A measures overall short-term liquidity (current assets / current liabilities), not payment speed.
• B assesses immediate liquidity without inventory ((current assets - inventory) / current liabilities), ignoring supplier payments.
• D evaluates collection time from customers (sales / average receivables), not payments to suppliers.

Final answer: C