What Is Average Selling Price (ASP)?

The term average selling price (ASP) refers to the price at which a certain class of good or service is typically sold. The average selling price is affected by the type of product and the product life cycle. The ASP is the average selling price of the product across multiple distribution channels, across a product category within a company, or even across the market as a whole.

Understanding Average Selling Price (ASP)

The average selling price is the price for a product or service in various markets, and is normally used in the retail and technology industries. The established ASP for a particular good can act as a benchmark price, helping other manufacturers, producers, or retailers set the prices for their own products.

Marketers who try to set a price for a product must also consider where they want their product to be positioned. If they want their product image to be part of a high-quality choice, they have to set a higher ASP.

Products like computers, cameras, televisions, and jewelry tend to have higher average selling prices while products like books and DVDs will have a low average selling price. When a product is the latter part of its product life cycle, the market is most likely saturated with competitors, therefore, driving down the ASP.

In order to calculate the ASP, divide the total revenue earned from the product by the total number of units sold. This average selling price is usually reported during quarterly financial results and can be considered as accurate as possible given regulation on fraudulent reporting.

Special Considerations

The smartphone market is a big industry which uses average selling prices. In the smartphone market, the average selling price indicates how much money a handset manufacturer is receiving on average for the phones that it sells.

For product-driven companies like Apple, calculations for average selling price provide pivotal information about its financial performance and, by extension, the performance of its stock price. In fact, there’s a clear relationship between Apple’s iPhone ASP and its stock price movements.

The iPhone’s ASP matters even more when considering how each device drives overall profitability for Apple. Apple consolidates its operations under a single profit-and-loss statement (P&L), meaning investors can’t tell how costs, such as marketing and research and development (R&D) are spread among the company’s various products.

Since the iPhone has the highest gross margin in Apple’s device family, the device generates the lion’s share of Apple’s profits. That makes the iPhone crucial in determining Apple’s overall financial performance each quarter.

Examples of Average Selling Price

The term average selling price has a place in the housing market. When the average selling price of a home within a particular region rises, this may be a signal of a booming market. Conversely, when the average price drops, so does the perception of the market in that particular area.

Some industries use ASP in a slightly different way. The hospitality industry—especially hotels and other lodging companies—commonly refers to it as the average room or average daily rate. These average rates tend to be higher during peak seasons, while rates normally drop when travel seems to be low or during off-seasons.

What Is an Affiliate?

Affiliate is used primarily to describe a business relationship wherein one company owns less than a majority stake in the other company’s stock. Affiliations can also describe a type of relationship in which at least two different companies are subsidiaries of the same larger parent company.

Affiliate is also commonly used in the retail sector. In this case, one company becomes affiliated with another in order to sell its products or services, earning a commission for doing so. This term is now used widely in partnerships among online companies in which the affiliate supports another company by channeling internet traffic and e-sales.

Understanding Affiliates

There are several definitions of the term affiliate in the corporate, securities, and capital markets.

Corporate Affiliates

In the first, an affiliate is a company that is related to another. The affiliate is generally subordinate to the other and has a minority stake (i.e. less than 50%) in the affiliate. In some cases, an affiliate may be owned by a third company. An affiliate is thus determined by the degree of ownership a parent company holds in another.

For example, if BIG Corporation owns 40% of MID Corporation’s common stock and 75% of TINY Corporation, then MID and BIG are affiliates, while TINY is a subsidiary of BIG. MID and TINY may also refer to one another as affiliates.

Note that for the purposes of filing consolidated tax returns, IRS regulations state a parent company must possess at least 80% of a company’s voting stock to be considered affiliated.

Retail Affiliates

In retail, and particularly in e-commerce, a company that sells other merchants’ products for a commission is an affiliate company. Merchandise is ordered from the primary company, but the sale is transacted at the affiliate’s site. Amazon and eBay are examples of e-commerce affiliates.

International Affiliates

A multinational company may set up affiliates to break into international markets while protecting the parent company’s name in case the affiliate fails or the parent company is not viewed favorably due to its foreign origin. Understanding the differences between affiliates and other company arrangements is important in covering debts and other legal obligations.

Other Types of Affiliates

Affiliates can be found all around the business world. In the corporate securities and capital markets, executive officers, directors, large stockholders, subsidiaries, parent entities, and sister companies are affiliates of other companies. Two entities may be affiliates if one owns less than a majority of voting stock in the other. For instance, Bank of America has a number of different affiliates around the world including Merrill Lynch.

Affiliation is defined in finance in a loan agreement as an entity other than a subsidiary directly or indirectly controlling, being controlled by or under common control with an entity.

In commerce, two parties are affiliated if either can control the other, or if a third party controls both. Affiliates have more legal requirements and prohibitions than other company arrangements to safeguard against insider trading.

An affiliate network is a group of associated companies that offer compatible or complementary products and will often pass leads to each other. They may offer cross-promotional deals, encouraging clients who have utilized their services to look into the services offered by an affiliate.

In banking, affiliate banks are popular for underwriting securities and entering foreign markets where other banks do not have direct access.

Affiliates vs. Subsidiaries

Unlike an affiliate, a subsidiary’s majority shareholder is the parent company. As the majority shareholder, the parent company owns more than 50% of the subsidiary and has a controlling stake. The parent thus has a great deal of control over the subsidiary and is allowed to make important decisions such as the hiring and firing of executives, and the appointment of directors on the board.

What Is the Accounts Payable Turnover Ratio?

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover shows how many times a company pays off its accounts payable during a period.

Accounts payable are short-term debt that a company owes to its suppliers and creditors. The accounts payable turnover ratio shows how efficient a company is at paying its suppliers and short-term debts.

The AP Turnover Ratio Formula


$\begin{aligned} &\text{AP Turnover}=\frac{\text{TSP}}{(\text{BAP + EAP})/2}\\ &\textbf{where:}\\ &\text{AP = Accounts payable}\\ &\text{TSP = Total supply purchases}\\ &\text{BAP = Beginning accounts payable}\\ &\text{EAP = Ending accounts payable}\\ \end{aligned}$​AP Turnover=(BAP + EAP)/2TSP​where:AP = Accounts payableTSP = Total supply purchasesBAP = Beginning accounts payableEAP = Ending accounts payable​

Calculating the Accounts Payable Turnover Ratio

Calculate the average accounts payable for the period by adding the accounts payable balance at the beginning of the period from the accounts payable balance at the end of the period.

Divide the result by two to arrive at the average accounts payable. Take total supplier purchases for the period and divide it by the average accounts payable for the period.

Decoding Accounts Payable Turnover Ratio

The accounts payable turnover ratio shows investors how many times per period a company pays its accounts payable. In other words, the ratio measures the speed at which a company pays its suppliers. Accounts payable is listed on the balance sheet under current liabilities.  

Investors can use the accounts payable turnover ratio to determine if a company has enough cash or revenue to meet its short-term obligations. Creditors can use the ratio to measure whether to extend a line of credit to the company.

A Decreasing AP Turnover Ratio

A decreasing turnover ratio indicates that a company is taking longer to pay off its suppliers than in previous periods. The rate at which a company pays its debts could provide an indication of the company’s financial condition. A decreasing ratio could signal that a company is in financial distress. Alternatively, a decreasing ratio could also mean the company has negotiated different payment arrangements with its suppliers.

An Increasing Turnover Ratio

When the turnover ratio is increasing, the company is paying off suppliers at a faster rate than in previous periods. An increasing ratio means the company has plenty of cash available to pay off its short-term debt in a timely manner. As a result, an increasing accounts payable turnover ratio could be an indication that the company managing its debts and cash flow effectively.

However, an increasing ratio over a long period could also indicate the company is not reinvesting back into its business, which could result in a lower growth rate and lower earnings for the company in the long term. Ideally, a company wants to generate enough revenue to pay off its accounts payable quickly, but not so quickly the company misses out on opportunities because they could use that money to invest in other endeavors.

AP Turnover vs. AR Turnover Ratios

The accounts receivable turnover ratio is an accounting measure used to quantify a company’s effectiveness in collecting its receivables or money owed by clients. The ratio shows how well a company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid.

The accounts payable turnover ratio is used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover shows how many times a company pays off its accounts payable during a period.

Accounts receivable turnover shows how quickly a company gets paid by its customers while the accounts payable turnover ratio shows how quickly the company pays its suppliers.

Limitations of AP Turnover Ratio

As with all financial ratios, it’s best to compare the ratio for a company with companies in the same industry. Each sector could have a standard turnover ratio that might be unique to that industry.

A limitation of the ratio could be when a company has a high turnover ratio, which would be considered as a positive development by creditors and investors. If the ratio is so much higher than other companies within the same industry, it could indicate that the company is not investing in its future or using its cash properly.

In other words, a high or low ratio shouldn’t be taken on face value, but instead, lead investors to investigate further as to the reason for the high or low ratio.

Example of the Accounts Payable Turnover Ratio

Company A purchases its materials and inventory from one supplier and for the past year had the following results:

• Total supplier purchases were $100 million for the year.
• Accounts payable was $30 million for the start of the year while accounts payable came in at $50 million at the end of the year.
• The average accounts payable for the entire year is calculated as follows:
• ($30 million + $50 million) / 2 or $40 million
• The accounts payable turnover ratio is calculated as follows:
• $100 million / $40 million equals 2.5 for the year
• Company A paid off their accounts payables 2.5 times during the year.

Assume that during the same year, Company B, a competitor of Company A had the following results for the year:

• Total supplier purchases were $110 million for the year.
• Accounts payable of $15 million for the start of the year and by the end of the year had $20 million.
• The average accounts payable is calculated as follows:
• ($15 million + $20 million) / 2 or $17.50 million
• The accounts payable turnover ratio is calculated as follows:
• $110 million / $17.50 million equals 6.29 for the year
• Company B paid off their accounts payables 6.9 times during the year. Therefore, when compared to Company A, Company B is paying off its suppliers at a faster rate.