How to Calculate Trade Creditor Days

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Financial analysts use a number of different measures and ratios to forecast the future performance of a stock. Analysts particularly like to focus on inventory. Inventory represents the lifeblood of most product-based organizations. One aspect of inventory is trade credit, or the average number of days suppliers are willing to give a company to pay on credit. Many companies use trade credit or accounts payable as a form of short-term financing.

  • Obtain an annual report. You can also look up accounts payable on the balance sheet that's published in the annual report. The annual report can be obtained by contacting the company's investor relations department or by going to the company's website.

  • Calculate credit purchases. You will need to know the value of purchases made on credit. A good place to go for this information is the procurement or supplier management department. You can also go to the notes for the balance sheet which are located immediately following the financial statements.

  • Find the average value of accounts payable. This information can be found on the balance sheet under Current Liabilities. You can determine accounts payable by taking the average of two years of data. For instance, if the accounts payable for Year 1 is $100,000 and accounts payable for Year 2 is $200,000, the average accounts payable is $150,000.

  • Calculate the creditor's turnover ratio. Divide the total value of credit purchases by the average accounts payable balance. For instance, if the value of all purchases made on credit is $100,000 and the average value of accounts payable is $50,000, then the turnover ratio is $100,000 divided by $50,000, or 2.

  • Calculate trade creditor days. Divide 365 days by the turnover ratio. For this example, the answer is 365 divided by two, or 182.5 days.

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