Question

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 include suppliers, vendors, or other companies.

• True

• False

Answer 1

True, Days payable outstanding is a financial metric for analyzing a companys strength to pay its creditors.Its is calculated as follows:-

(Accounts payable / Cost of Goods Sold) * 365

DPO is a measure of how long it takes the company to pay it’s accounts payable. The longer it takes the company to pay, the more cash reserves it will have which can be used to generate revenue.However it must also be realized that an unually long DPO may doubt the company's ability to pay its creditors.