IntegrityDPO#78

Piotroski F-Score

How many days a company takes to pay its suppliers. Higher DPO conserves cash. When DPO exceeds DSO, the company gets paid by customers before paying suppliers, which is favorable.

Formula

(Accounts Payable / COGS) x 365

Description

Measures how many days a company takes to pay its suppliers. Higher DPO means the company holds onto cash longer before paying, which benefits working capital. Very high DPO may strain supplier relationships.

Interpretation

Above 30 days is typical. Very high DPO (above 90 days) may indicate strong supplier bargaining power or cash flow problems. Compare to DSO: DPO exceeding DSO means the company gets paid before it pays, which is favorable.

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Related Integrity Indicators

Debt-to-Equity Ratio (D/E)OCF/Debt

Operating cash flow divided by total debt. Measures how quickly a company could repay all its debt from operating cash flow alone. Above 0.5 means the company could theoretically pay off all debt in two years from operations. Below 0.15 signals heavy debt relative to cash generation.

Debt-to-Assets RatioFCF Conv

Free cash flow divided by net income. Above 1.0 means the company generates more cash than its reported profits, a hallmark of high-quality earnings. Consistently below 0.7 is a red flag.

Net Debt to EBITDA (Net Debt/EBITDA)Accrual

Compares operating cash flow to net income. When cash flow exceeds earnings, the company's profits are well-supported by actual cash. This is one of the nine criteria in the Piotroski F-Score.

Current RatioCapEx/Rev

What percentage of revenue must be reinvested in capital assets. Below 8% is capital-light and attractive. Buffett prefers businesses that don't require large ongoing capital outlays to maintain their competitive position.

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