This tutorial gives a comprehensive overview of Days Payable Outstanding, its meaning, calculations and interpretations. We will also use the Colgate Case Study to calculate this ratio in Excel. You can download the Colgate Days Payable Outstanding template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/
What is Days Payable Outstanding?
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Days payable outstanding helps measure the average number of days it takes a business to pay off its creditors.
Formula
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Days Payable Outstanding Formula = Accounts Payable / (Cost of Sales / Number of Days)
Interpretation of Days Payable Outstanding (DPO)
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– If the company’s DPO is lower than the industry’s average DPO, the company may want to consider increasing its days payable outstanding. However, the company should keep in mind that doing so does not cost them the vendor or any positive supplier benefits.
– If the company’s DPO is higher than the industry’s average DPO, the company should consider lowering its DPO. By doing so, they will be able to satisfy the vendors.
For more details, you can refer to our article – https://www.wallstreetmojo.com/days-payable-outstanding/
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