Which formula correctly gives the trade payable payment period (in days)?

Which formula correctly gives the trade payable payment period (in days)?

• A. COS / trade payable x 365
• B. trade payables / revenue x 365
• C. trade payable x 365 / COS
• D. trade payable / COS x 365

Answer: (D)

This metric shows how many days, on average, it takes to pay suppliers. It relates the amount you owe to suppliers (trade payables) to the cost base of what you’ve sold, then converts that ratio into days by multiplying by 365. The correct form uses trade payables divided by cost of sales, then multiplied by 365: trade payables / COS × 365. This captures how long the payables are outstanding relative to the cost of goods sold, which is the activity that drives supplier payments. Using revenue instead of cost of sales would mix in a different measure of performance, and using COS in the numerator would invert the ratio, both of which don’t reflect the payment period. Two equivalent ways exist: (trade payables / COS) × 365 and (trade payables × 365) / COS yield the same value, but standard presentation typically shows the ratio first and then the 365 multiplier. For example, if trade payables are 150 and COS is 600, the period is (150/600) × 365 ≈ 91 days.

This metric shows how many days, on average, it takes to pay suppliers. It relates the amount you owe to suppliers (trade payables) to the cost base of what you’ve sold, then converts that ratio into days by multiplying by 365.

The correct form uses trade payables divided by cost of sales, then multiplied by 365: trade payables / COS × 365. This captures how long the payables are outstanding relative to the cost of goods sold, which is the activity that drives supplier payments. Using revenue instead of cost of sales would mix in a different measure of performance, and using COS in the numerator would invert the ratio, both of which don’t reflect the payment period.

Two equivalent ways exist: (trade payables / COS) × 365 and (trade payables × 365) / COS yield the same value, but standard presentation typically shows the ratio first and then the 365 multiplier. For example, if trade payables are 150 and COS is 600, the period is (150/600) × 365 ≈ 91 days.