Definition
Accounts payable (AP) represents purchases made on credit awaiting payment. Managing AP strategically can improve cash flow - paying slower preserves cash but may hurt supplier relationships. Days Payable Outstanding (DPO) measures payment timing.
Formula
DPO = (Accounts Payable / COGS) × 365
Example
With $25M payables and $200M COGS, DPO is 46 days. The company takes 46 days on average to pay suppliers, which is typical for manufacturing.
FAQ
What is Accounts Payable?
Money the company owes to suppliers for goods or services received.
How do you calculate Accounts Payable?
A common formula for Accounts Payable is: DPO = (Accounts Payable / COGS) × 365
Why is Accounts Payable important?
Accounts Payable helps investors evaluate financial statements and make more informed decisions.