Days Payables Outstanding Ratio

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and notes

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Days Payables Outstanding Ratio

Days Payables Outstanding Ratio =

AP

(Cost of Sales/days in accounting period)

INTERPRETATION

Days payables outstanding indicate the average time (in days) that a company takes to pay its bills and creditors.

DPO is an insightful cash-flow metric that indicates how well a company manages its cash outflows.

Note: expanded calculation

Divide the accounts payable by the derivation of the cost of sales and the average number of days outstanding.

DPO is typically calculated on a quarterly or annual basis.

EXAMPLE

AP = 80,000

Cost of Sales = 500,000

DPO = 80,000 / (500,000/ 365 days) = 58.40

M&M Company has a DPO of 58 for the year, which means it took 58 days on average to pay its suppliers during that time.

BENCHMARK: HA, PG, EB, ROT

While a healthy DPO varies by industry and can depend on a company’s competitive position, a high result generally represents good cash management.

Because companies take longer to pay their bills and creditors, they are more likely to have cash that could be used for short-term investments. On the other hand, a company that pays its bills quickly (low DPO) may be able to develop strong relationships with its vendors.

Days Payables Outstanding Ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.