Resolved: Number of Days of Payables

Question

Ivan, why does this video change the formula for: Number of days of payables? This video's formula is: (Accounts payable) / (Average day's purchases) = (Accounts payable) / (Annual purchases / 365). However, the formula in a previous video was instead: 365 / (Payables turnover ratio) = 365 / (Purchases / Avg trade payables). Are both formulas for the same metric? Thanks.

Answer 1

Hello James,
Great question — yes, both formulas are for the same metric — Days Payable Outstanding (DPO) or Number of Days of Payables.

They just approach it from two mathematically equivalent angles. Please don't get confused.
Best,
Ned

Resolved: Number of Days of Payables

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