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Days payable outstanding

Days payable outstanding

Description

Days payable outstanding (DPO) indicates the amount of days needed to cover accounts payable to creditors in the given period of time (per year, per quarter and etc). Data to calculate this ratio is collected from balance sheet and income statement.

Norms and limitations

A high value of DPO shows that the company might have difficulties covering its’ payments to short term creditors. Also it might mean that the company has negotiated very favorable conditions from their suppliers. In other way if the value of the ratio is low, it indicates faster payments to suppliers.

There are no general norms for this ratio. It is recommended to compare this ratio with those of the companies, working within the same industry.

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