Payables Days

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Last updated 9:11 AM on 10/8/24
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5 Terms

1
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What are trade payables?

Amounts owed by a business to suppliers and others

2
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What do trade payables show?

The average length of time taken by a business to pay amounts it owes

3
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What is the equation?

(Trade payables/Cost of sales) x365

4
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How should you interpret results?

  • In general, a higher figure is better for cash flow

  • Ideally, payable days are higher than receivable days

  • Be careful: a high figure may suggest liquidity problems (stretching supplier goodwill)


5
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What should you look for when evaluating payable days?

  • Evidence from the current ratio or acid test ratio that business has problems paying creditors

  • Window-dressing: This is the easiest figure to manipulate