Which statement best defines days payable outstanding (DPO) and what it indicates for a healthcare organization?

• A. DPO = average accounts payable divided by cost of goods sold per day; indicates how long the organization takes to pay suppliers and its liquidity management.
• B. DPO = average accounts payable divided by total revenue per day; indicates sales cycle efficiency.
• C. DPO = cost of goods sold per day divided by average accounts payable; indicates supplier leverage.
• D. DPO = average accounts receivable divided by average daily COGS; indicates cash conversion cycle.

Answer: (A)

Days payable outstanding shows how long, on average, a healthcare organization takes to pay its suppliers. It's calculated by taking average accounts payable and dividing by the cost of goods sold on a daily basis (or equivalently 365 times average accounts payable divided by annual COGS). This metric reveals how the organization uses supplier credit to fund operations and manage liquidity—the longer the DPO, the more cash is retained inside the organization before paying bills, though it can affect supplier relations if payments are consistently delayed.

So the best description is that DPO measures the time to pay suppliers and reflects liquidity management. The other formulations don’t fit: using revenue per day targets sales activity rather than payables; reversing the ratio would not represent standard DPO; and using accounts receivable mixes in inflows rather than payables, which changes the metric entirely.