Days Payables Outstanding measures the average number of days a company takes to pay its suppliers. Higher DPO means the company is taking longer to pay, which preserves cash for other uses. Companies with strong bargaining power (like large retailers) often have high DPO because they can negotiate extended payment terms.
DPO = 365 / Payables Turnover (TTM)
Derived from payables turnover, which uses TTM COGS divided by average accounts payable from SEC filings.
A: Higher DPO preserves cash and can indicate negotiating power with suppliers. However, excessively high or rapidly rising DPO may indicate the company is stretching payments due to cash flow problems. The best interpretation comes from comparing DPO to industry norms and tracking the trend.
A: DPO is subtracted from the sum of DSO and DIO to calculate the cash conversion cycle. Higher DPO reduces the cash conversion cycle, meaning the company needs less working capital.
A: DPO depends on how COGS and accounts payable are defined. GeminIQ uses as-filed values.