What is the formula for the trade payables payment period?

The formula for the trade payables payment period is accurately represented by dividing trade payables by the cost of sales and then multiplying the result by 365. This calculation helps determine the average number of days that a company takes to pay its suppliers.

By using trade payables in the numerator, the formula focuses on the outstanding liabilities a company has regarding its accounts payable. The cost of sales reflects the total cost incurred in producing the goods sold, which is essential for contextualizing how long it takes to settle these debts. Multiplying by 365 standardizes the result to a time frame, providing an average payment period in days, which is particularly useful for assessing cash flow and financial health.

This metric is crucial for understanding liquidity and supplier relationships, as longer payment periods can indicate better cash flow management but might also raise concerns with suppliers if they indicate delay in payments. Hence, option A correctly encapsulates the relationship between trade payables and the cost of sales over a year, leading to an insightful measure of financial performance regarding payables.

In contrast, the other options do not accurately represent the relationship required to calculate the trade payables payment period effectively. For example, using total sales or operating expenses in the formula would not yield the necessary insight into how effectively