HBR 20-Minute Manager Boxed Set (10 Books) (HBR 20-Minute Manager Series)

Finance Basics

36

• Days payable outstanding, or ending ac-

counts payable divided by cost of goods sold per

day. This measure tells you how many days it

takes a company to pay its suppliers. The more

days it takes, the longer a company can use the

cash. Of course, the desire for more cash has to

be balanced against maintaining good relation-

ships with suppliers.

• Inventory days, or average inventory divided

by cost of goods sold per day. This ratio indi-

cates how long it takes a company to sell the

average amount of inventory on hand during

a given period of time. The longer it takes, the

more cash the company has tied up and the

greater the likelihood that the inventory will

not be sold at full value.

Again, it’s often helpful to compare ...