This Days Payable Outstanding (DPO) Calculator accurately determines the average number of days a company takes to pay its suppliers, providing a key measure of liquidity and cash management efficiency.
Welcome to the **Days Payable Outstanding Calculator**. DPO is an important metric used to evaluate a company’s working capital management. It measures how many days, on average, a company takes to pay its bills and invoices from trade creditors. You can input any three of the four variables—Accounts Payable ($AP$), Cost of Goods Sold ($COGS$), Days in Period ($D$), or Days Payable Outstanding ($DPO$)—to solve for the missing one.
Days Payable Outstanding Calculator
Days Payable Outstanding Formula
The core relationship is:
$$ DPO = \frac{AP}{COGS} \times D $$
Where $D$ is the number of days in the accounting period (usually 365).
1. Solve for DPO (Days):
$$ DPO = (AP \times D) / COGS $$
2. Solve for Accounts Payable (AP):
$$ AP = (DPO \times COGS) / D $$
3. Solve for COGS:
$$ COGS = (AP \times D) / DPO $$
4. Solve for Days in Period (D):
$$ D = (DPO \times COGS) / AP $$
Formula Source: Investopedia – Days Payable Outstanding
Variables Explained
- DPO – Days Payable Outstanding: The average number of days it takes for a company to pay its creditors. (Output in days)
- AP – Accounts Payable: The balance of money owed by a business to its suppliers. (Input/Output as currency)
- COGS – Cost of Goods Sold: The direct costs of goods sold during the period. (Input/Output as currency)
- D – Days in Period: The number of days in the accounting period (e.g., 365 for a year). (Input/Output in days)
Related Calculators
What is Days Payable Outstanding (DPO)?
Days Payable Outstanding (DPO) is a liquidity and efficiency ratio that measures the average number of days a company takes to pay its suppliers. In simple terms, it shows how effectively a company is managing its cash outflows. A high DPO means a company is holding onto its cash longer, which can be beneficial for working capital but may strain supplier relationships if too high.
DPO is calculated by taking the average Accounts Payable ($AP$) and dividing it by the Cost of Goods Sold ($COGS$) per day. A longer DPO period often indicates that the company is using its supplier’s capital effectively. However, comparing DPO across industries is crucial, as what is acceptable can vary widely (e.g., retailers often have higher DPO than manufacturers).
Maintaining an optimal DPO balance is key. Too low, and the company is missing out on free float cash. Too high, and the company might risk losing early payment discounts or damaging its credit reputation.
How to Calculate Accounts Payable (Example)
A manufacturing firm has a **DPO** of **40 days** during a **365-day period**. The company’s annual **COGS** totaled **$850,000**.
- Determine the Missing Variable: Accounts Payable ($AP$) is missing.
- Apply Formula: $AP = (DPO \times COGS) / D$.
- Calculate Numerator: $DPO \times COGS = 40 \text{ Days} \times \$850,000 = \$34,000,000$.
- Substitute Values: $AP = \$34,000,000 / 365 \text{ Days}$.
- Determine Accounts Payable: $AP \approx \$93,150.68$. The Accounts Payable is **$93,150.68**.
- Consistency Check: Does $DPO \approx (AP / COGS) \times D$? $40 \approx (\$93,150.68 / \$850,000) \times 365$. $40 \approx 0.1095 \times 365 \approx 40$. Yes, it is consistent.
Frequently Asked Questions (FAQ)
It depends. A high DPO is generally considered good for the company’s liquidity, as it means cash is retained longer. However, if it’s too high, it might indicate inability to pay bills, or strained relationships with suppliers who may charge higher prices in the future.
What is the typical value for Days in Period (D)?For annual calculations, $D$ is typically 365 days. For quarterly reporting, 90 or 91 days is often used, and 30 days for monthly reports. Consistency is key when comparing metrics.
Why is COGS used instead of Total Revenue?COGS (Cost of Goods Sold) is a more appropriate measure because Accounts Payable is directly related to inventory and purchases of goods sold. Total Revenue includes margin and other income unrelated to supplier purchases, leading to an inaccurate ratio.
Can DPO be negative?No. Accounts Payable (AP), COGS, and Days in Period (D) are always non-negative. Therefore, DPO must be a positive number or zero. A negative result indicates an input error.