Days Payable Outstanding (DPO) is a financial metric used to measure the average number of days a company takes to pay its suppliers. It is calculated as

[ text{DPO} = frac{text{Accounts Payable} times text{Number of Days}}{text{Cost of Goods Sold}} ]

Components of DPO

Accounts Payable: The amount a company owes to its suppliers for goods and services purchased on credit.

Number of Days: Typically, this is 365 days for annual calculations.

Cost of Goods Sold (COGS): The total cost incurred by a company to produce goods or services sold during a specific period.

A lower DPO indicates that a company is paying its suppliers more quickly, which might imply strong liquidity but could also suggest strained supplier relationships or less favorable credit terms. Conversely, a higher DPO suggests that a company takes longer to pay its suppliers, potentially conserving cash or enjoying more lenient credit terms.