 Day's payables outstanding measures how many days on average it takes to pay off accounts payable. It's sometimes called the DPO. Day's payable outstanding is a measure of efficiency. The formula to calculate day's payable outstanding has two parts. The first part is costs of goods sold divided by 365 days if you're calculating this using annual data. This gives us the average one day's costs of goods sold. The second part is taking average accounts payable and dividing it by the average one day's costs of goods sold calculated in part one. This gives us the day's payable outstanding. So here's an income statement from a sample company. I've highlighted costs of goods sold and we'll use that information to determine the average one day's costs of goods sold. Additionally, we'll need some information from the current liabilities section of a balance sheet. I've highlighted two years worth of accounts payable balances. For 2016 part one gives us an average one day's costs of goods sold of $150 and 68 cents. In part two, we divide the average accounts payable by the one day's costs of goods sold to get 20.9 days. On average, we're paying off accounts payable about every 21 days. Generally, companies would want day's sales and receivable to be less than day's payable outstanding or a cash shortage could occur.