Payable days

• What type of ratio is payables days?

  Efficiency ratio
• What does payables days indicate?

  Time taken to pay back creditors
• Who are the creditors referred to in payables days?

  Your suppliers
• What is the formula for calculating payables days?

  Payables / Cost of Sales × 365
• Where can you find payables information?

  Statement of financial position
• What does cost of sales represent?

  Direct costs of producing goods or services
• Where is cost of sales typically found?

  At the top of the income statement
• Why should payables days be larger than receivables days?

  To ensure cash inflow before cash outflow
• What does a high payables days indicate?

  Potential damage to supplier relationships
• Why is it important to consider the type of supplier?

  Some suppliers are strategic and irreplaceable
• What is just-in-time inventory management?

  A method to reduce inventory costs
• What does it suggest if payables days are increasing while the current ratio is worsening?

  There may be a liquidity issue
• What should be considered if a liquidity issue is identified?

  Suggest an appropriate source of finance
• What are the key components of the payables days formula?

  • Payables (creditors)
  • Cost of sales (direct costs)
  • Multiplied by 365 to convert to days
• What are the implications of having high payables days?

  • Potential damage to supplier relationships
  • Risk of liquidity issues
  • Importance of strategic suppliers