Prepayment Turnover

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Definition

Prepayment Turnover are the amount of revenues over prepaid expenses. A prepayment turnover of nine implies that a company has nine times more revenue than the amount of expenses it has prepaid.

Low prepayment turnovers imply that the company is not effectively using its cash (ie. a significant amount of its revenues are already being prepaid). However, low margins can also indicate favorable terms given by the company's suppliers for prepaying early. Suppliers in certain industries frequently give a 2% discount to its customers if supplies are paid ahead of time.

High prepayment turnovers imply the company is effectively using its cash, (ie. making no prepayments ahead of time). Potentially, it can also imply a company is having issues with its cash management (if a company doesn't have enough cash, it prepays less).

Formula

YCharts calculates this as Total Revenues / Average of Prepaid Expenses in a Quarter.

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