Days payable outstanding (DPO) is the average number of days it takes a company to pay its suppliers. DPO is calculated by dividing 365 by payables turnover, where payables turnover is total credit purchases from suppliers divided by the average accounts payable (A/P). DPO = 365/(Payables Turnover) = 365/((Total Credit Purchases)/(Average A/P)) Some people calculate DPO using total purchases. But if cash purchases make up a significant portion of total purchases, then using total purchases (instead of total credit purchases) will distort DPO. However, if the proportion of purchases that are cash purchases is fairly stable over time, this limitation isn’t that critical when analyzing trends in DPO. Unfortunately, many companies don’t disclose their total purchases (credit or otherwise) from suppliers. In such cases, you can attempt to estimate total purchases or simply use cost of goods sold (COGS) instead of total purchases when calculating DPO. Here’s the formula for …
