Days payables outstanding
Financial ratio analysis - management efficiency ratios.
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.