Days Payable Outstanding (DPO)

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What Is Days Payable Outstanding (DPO)?

 

Days Payable Outstanding (DPO) is a financial metric that measures the number of days it takes a company to pay its invoices. It is used to assess a company’s short-term liquidity and its ability to meet its financial obligations.

A high DPO indicates that a company is taking longer to pay its invoices, which may be an indication of financial strain. A low DPO, on the other hand, indicates that a company is able to pay its invoices in a timely manner.

Investors and creditors use DPO as one factor in assessing a company’s financial health. A high DPO may be cause for concern, indicating that the company may have difficulty meeting its short-term obligations. Conversely, a low DPO may be seen as a positive sign, indicating that the company is manage its finances effectively.

DPO is calculated by dividing a company’s Accounts Payable by its Average Daily Purchases.

Accounts Payable = $100,000

Average Daily Purchases = $10,000

DPO = 100,000 / 10,000 = 10 days

This means that it would take the company 10 days to pay off all of its outstanding invoices if it did not make any new purchases during that time period.

Days Payable Outstanding (DPO) can be a useful metric for assessing a company’s short-term liquidity and its ability to meet its financial obligations. A high DPO indicates that a company is taking longer to pay its invoices, which may be an indication of financial strain. A low DPO, on the other hand, indicates that a company is able to pay its invoices in a timely manner.

Investors and creditors use DPO as one factor in assessing a company’s financial health. A high DPO may be cause for concern, indicating that the company may have difficulty meeting its short-term obligations. Conversely, a low DPO may be seen as a positive sign, indicating that the company is manage its finances effectively.

To calculate DPO, divide a company’s Accounts Payable by its Average Daily Purchases.

For example, if a company has Accounts Payable of $100,000 and Average Daily Purchases of $10,000, its DPO would be 10 days. This means that it would take the company 10 days to pay off all of its outstanding invoices if it did not make any new purchases during that time period.

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