Days payables outstanding: Difference between revisions
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Days payables outstanding are a working capital management ratio calculated by dividing accounts payable outstanding at the end of a time period by the average daily credit purchases for the period. | Days payables outstanding are a working capital management ratio calculated by dividing accounts payable outstanding at the end of a time period by the average daily credit purchases for the period. | ||
DPO measures the average number of days taken to pay trade suppliers. | |||
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The DPO is: | The DPO is: | ||
50,000 / 400,000 | (50,000 / 400,000) x 365 | ||
= 45.6 days | |||
A higher number is generally perceived as better, but a business needs to maintain the goodwill of its suppliers and | |||
A higher number is generally perceived as better, but a business needs to maintain the goodwill of its suppliers and shorter payment terms may therefore be necessary. | |||
Latest revision as of 11:16, 6 February 2019
Financial ratio analysis - management efficiency ratios.
(DPO).
Days payables outstanding are a working capital management ratio calculated by dividing accounts payable outstanding at the end of a time period by the average daily credit purchases for the period.
DPO measures the average number of days taken to pay trade suppliers.
For example: a company has an average of £50,000 of payables over a year in which the cost of goods sold was £400,000.
The DPO is:
(50,000 / 400,000) x 365
= 45.6 days
A higher number is generally perceived as better, but a business needs to maintain the goodwill of its suppliers and shorter payment terms may therefore be necessary.
Also known as Creditor days or Payables days.
