Payables Turnover Calculator

How it is calculated

The payables turnover ratio is turnover = purchases ÷ average accounts payable. Days payable outstanding follows from it: DPO = 365 ÷ turnover. Purchases are the amount bought from suppliers on credit over the period, or cost of goods sold if purchases are not available. Average payables is normally (opening balance + closing balance) ÷ 2, which you work out yourself and enter. Purchases cannot be negative, average payables must be above zero, and if purchases are zero the tool gives no result. The ratio and DPO assume a full year of 365 days, so enter yearly purchases. A higher ratio and a lower DPO mean suppliers are paid faster.

Common mistakes

• Using year-end payables instead of the average. If payables grew a lot during the year, the year-end figure understates the ratio.
• Mixing periods, for example quarterly purchases with a 365-day DPO. The days figure will be roughly four times too large.
• Using sales as the numerator. The ratio compares what you buy from suppliers, not what you sell to customers.
• Using COGS when purchases are available (or the other way round) and then comparing with another company that used the opposite basis.
• Reading a very high turnover as always good. It may mean you are giving up the cash benefit of longer supplier terms.