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What are trade payables?
Amounts owed by a business to suppliers and others
What do trade payables show?
The average length of time taken by a business to pay amounts it owes
What is the equation?
(Trade payables/Cost of sales) x365
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)
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
