# Days Payable Outstanding

Days Payable Outstanding is a type of Turnover Ratio that determines the average time taken by a company (in days) to pay its outstanding bills and invoices. In other words, this ratio tells how fast a company pays off its dues.
$$Days\quad Payable\quad Outstanding=\quad$$$$\frac { Accounts\quad Payable\quad ×\quad Number\quad of\quad Days }{ Cost\quad of\quad Goods\quad Sold }$$
Accounts Payable is the amount a company owes in form of Outstanding Bills and InvoicesWhere
• Cost of Goods Sold = Inventory at the Beginning of Period + Purchases – Inventory at the End of Period

## Significance and Interpretation

• High Days Payable Outstanding indicates that the company is holding or delaying its payments against accounts payable, this may be due to a shortage of cash or utilizing cash in other areas.
• Low Days Payable Outstanding indicates that the company is efficiently clearing its payments against accounts payable, this may be due to regular or high cash flow expected by the company.

### Examples

#### Example 1:

Use the following data of ABC Ltd, to calculate its Days Payable Outstanding.
• Total Accounts Payable during FY = Rs. 120000.00
• Total Purchase During FY = Rs. 400000.00
• Inventory at the Beginning of FY = Rs 300000.00 (adjusted for Depreciation)
• Inventory at the End of FY = Rs 500000.00 (Adjusted for Depreciation)

#### Solution:

Accounts Payable = Rs. 1200000
Number of Days = 1 FY = 365 Days
Cost of Goods Sold = Inventory at the Beginning of Period + Purchases – Inventory at the End of Period
3000000 + 4000000 – 5000000
Rs. 2000000.
$$Days\quad Payable\quad Outstanding=\quad$$$$\frac { Accounts\quad Payable\quad ×\quad Number\quad of\quad Days }{ Cost\quad of\quad Goods\quad Sold }$$
(120000 * 365)/2000000
Hence, Days Payable Outstanding = 21.9 Days 