Develop and analyze financial statements. Describe what an average payment period is and how it is calculated.

Assignment 2: required assignment 1—financial statement analysis:

It is a ratio of financial value that shows how long it will take a firm to pay creditors and suppliers. The payment period is usually expressed in days between the time an invoice was issued and the date the company received the payment. The average payment period can be calculated by dividing a company’s accounts payable balance by its total credit purchases over a given period of time.

As an example, if the company had $100,000 in payables by the end of the month and its total credit purchases were $5000 for the entire month then their average payment period could be calculated using 100,000/500,000=20 days. It would then mean that it takes on average 20 days for a company to pay an invoice.

The average payment period can provide useful insight into how well managed or efficient an organization’s operations are with regards to paying its bills as well as assessing potential cash flow problems. A lower-than-average ratio suggests that payments are being made faster than usual while higher ratios indicate slower payments – both of which could have implications for liquidity issues down the line if not addressed promptly