Days payables outstanding

From ACT Wiki
Jump to: navigation, search

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.

See also