Days' Sales in Accounts Payable understand, number

defour44

Formula = [accounts payable/COGS] X number of days
Anyone understand the logic of this?

LorrinCFA

COGS/Accounts Payable is the Acct Payable Turnover and this tells you the rate a company pays off its suppliers. So dividing 365days from this turnover ratio would tell you how many days on average it takes to pay off your purchases.