![]() ![]() ![]() What is a good days payable outstanding?Īfter looking at the example above, we still need to interpret these values and ask ourselves what are good values for DPO, DSO and DIO. It also takes an average of 54.8 days for the company to sell off its stocks and replace them with new ones. The company's customers, on the other hand, pay their bills after an average of 22.8 days. On average, it takes 45.6 days for the company to pay its bills. A company has determined the following values as part of its annual financial statements:Īccounts payable at start of year: £200,000Īccounts payable at end of year: £150,000Īccounts receivable at start of year: £280,000Īccounts receivable at end of year: £230,000ĭPO = Average accounts payable / COGS x 365 = (£200,000 - £150,000) / £400,000 x 365ĭSO = Average accounts receivable / Total sales x 365 = (£280,000 - £230,000) /ĭIO = Average inventory / COGS x 365 = (£160,000 - £100,000) / £400,000 x 365 = 54.8 Let us now take a look at the above formulas using an example. DSO indicates how long it takes on average for a company's customers to pay their invoices:ĭSO = Average accounts receivable / Total sales x 365ĭIO gives the average value of how long it takes for a company to sell and replace its inventory:ĭIO = Average inventory / COGS x 365 How to calculate DPO, DSO & DIO: Example These include, for example:īesides DPO, there is also DSO (days sales outstanding) and DIO (days inventory outstanding). The important thing is that both accounts payable and COGS always refer to the same period.ĬOGS includes all costs that are directly related to the production and distribution of products or the provision of services. However, you can also choose a different period to calculate the DPO, e.g. This means that one compares the accounts payable within one year with COGS in the same year. This formula refers to a period of one year (365 days). Expressed in a formula, it looks like this:ĭPO = Average accounts payable / COGS x 365 To calculate days payable outstanding, one compares the costs of goods sold (COGS) within a certain period with the average accounts payable in the same period. We show you how to calculate this value, what it says and how it can be improved. The days payable outstanding (DPO) value indicates how long it takes on average for a company to pay its invoices. ![]()
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