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Days Payable Outstanding

Revision as of 21:04, 15 February 2021 by User (talk | contribs)

Days payable outstanding (DPO) is a financial ratio that indicates the average time (in days) that a company takes to pay its bills and invoices to its trade creditors, which may include suppliers, vendors, or financiers. The ratio is typically calculated on a quarterly or annual basis, and indicates how well the company’s cash outflows are being managed. A company with a higher value of DPO takes longer to pay its bills, which means that it can retain available funds for a longer duration, allowing the company an opportunity to utilize those funds in a better way to maximize the benefits. A high DPO, however, may also be a red flag indicating an inability to pay its bills on time.[1]


Days Payable Outstanding Formula[2]
Days payable outstanding is calculated using the following formula:

DPO = accounts payable x number of days/cost of goods sold

Accounts payable is the company’s accounts payable balance. Some companies calculate DPO using the accounts payable balance at the end of the relevant period, while others may use the average account payable balance during the relevant period.
Number of days is the number of days within the accounting period – i.e. 365 days for one year or 90 days for a quarter.<
Cost of goods sold is the cost the company incurs in producing a product, including raw materials and transportation costs.

For example, if a company has average accounts payable of $100,000 over a 365-day period, and the cost of sales is $500,000, the DPO will be calculated as follows: DPO = 100,000 x 365 / 500,000 = 73 days

  1. Definition - What is Days Payable Outstanding (DPO) Investopedia
  2. Days Payable Outstanding Formula Taulia