It measures the
average length of credit given to the company
by its suppliers.
What is crucial
to assess is the trend !
Example :
Click
here to see the source of data
Starworld
Group |
2021 |
2022 |
2023 |
Accounts payable at the beginning of
the year
|
? |
116 |
139 |
| Accounts payable at the end of the year
|
116 |
139 |
181 |
Average Accounts Payable
|
? |
128 |
160 |
Cost of sales
|
696 |
835 |
1086 |
| Opening days |
365 |
365 |
365 |
| Average Payment
Period ( Days) |
? |
56 |
54 |
Starworld
Group |
2022 |
2023 |
| Payments to suppliers |
831 |
1079 |
- Accounts payable at the beginning
of the year
|
116 |
139 |
| + Accounts payable at the
end of the year |
139 |
181 |
| = Purchases |
854 |
1121 |
Note :
If the Average Payment Period in days is
higher or lower than 54-
56 days, it will
not affect the purchases but the CASH through
the payments to suppliers.
For instance, an increase
of Average Payment Period in days increases
the CASH position of the firm. In other
words, that means more Accounts Payable
and, of course, less payments to suppliers.
Sources :
Interpreting
and using Financial Statements, 1999,
Marc Bertonèche, Ph. D. in Finance
from the Northwestern University, Professor
at the Bordeaux University and at Sciences-PO
Paris, Visiting Professor at Harvard Business
School and Oxford University
Corporate
Finance Course, Bernard Jaquier, Professor
in Economics & Finance, Lausanne, Switzerland, 2024
