DPO Calculation Opex

[Alptug96]

Hello could you please help?

How do you calculate DPO(days payable outstanding) every resource its referred to be calculated using COGS but why dont we include OPEX lines to marketing wages etc or other 3rd expenses

 

[Kat Maple]

Hi Alptug96

For one thing, the DPO metric is the counterpart of the Days Sales Outstanding metric, dealing only with sales of goods. Another thing is that if you try to include ALL payables and their expenses, then the CAPEX items affect you. What would the metric look like if you include purchase of a large machine costing 1,000,000 Lira payable in a year? The large amount in A/P will affect your metrics. Also, how to deal with depreciation expense? So, the DPO metric has a defined narrow method of calculation to keep it effective.

Regards

Kat

 

[Alptug96]

Hi Kat,

Thanks for your response but then How can I exclude Capex for A/P anyway , I was thinking to use trade payables to 3rd parties in B/S for the calculation. But I believe when you acquire Machine then you have payable goes to "trade payables to 3rd parties" as well. Regarding depreciation I was not going to include it but I was thinking mostly about including Marketing Costs , Marketing Team salaries , or finance team overheads etc.

THanks for the help again.

 

[Praz Finpoint]

DPO - Days Payable Outstanding - compares Cost of Goods Sold to Trade Payables, because both the Cost of Goods Sold and Trade Payables primarily comprises of the Expenses and related Liabilities of Vendors pertaining to the Cost of Producing & Selling Goods, and generating the Sales.

For other liabilities such as Marketing Costs, Marketing Team Salaries, etc. these liabilities are normally recorded as Other/Non-Trade Liabilities on the Balance Sheet. Included these Expenses as part of Cost of Goods Sold over Trade Payables would not be correct due to the different base make-up/