Accounts payable turnover for Big Rowe Inc., increased from 10 to 12 during 2012. Which of the following statements best describes what this means?

The company paid its accounts payable more quickly in 2014, signaling a stronger liquidity position.

The statement is correct: The company paid its accounts payable more quickly in 2014, signaling a stronger liquidity position.

Explanation:

Accounts payable turnover measures how fast does a company pays its debt to suppliers, e. g. merchandise bought on credit, utility bills, etc.

If Big Rowe's account payable turnover was 10, it means that it paid its account payables every 36 days (365 / 10). If it was able to increase its accounts payable turnover to 12, it means that it is paying its accounts payables every 30 days (365 / 12).

When a company pays it debts faster, it means that it has a stronger liquidity position, i. e. it has more money available. It may also mean that the company is benefiting from early payment discounts, which decrease the cost of goods sold.