This video shows how to calculate Days Payable Outstanding, which tells you how many days it takes the company to pay its suppliers for purchases the company made on credit.
Days Payable Outstanding is calculated by dividing the number of days in a period (e.g., if we’re talking about one year, the number would be 365) by the company’s Accounts Payable Turnover Ratio for the period. This tells you the number of days it takes the company to pay its suppliers. For example, if the Accounts Payable Turnover Ratio is 5 and we are looking at a period of a year, the Days Payable Outstanding would be 365 / 5 = 73 days. This means it takes the company 73 days to pay its suppliers.