This ratio measures the average length of time trade debt is outstanding.
Why it Matters to You
A company with a higher value takes longer to pay its bills, which means that it can retain available funds for a longer duration, allowing the company an opportunity to utilize those funds in a better way to maximize the benefits. However, this can also indicate that the company is unable to pay its bills.
It is suggested that a company pays its bills on the due date to take full advantage of its freed up cash while keeping its working capital at the appropriate levels.