BEST PRACTICES Definition

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BEST PRACTICES are the generally understood operational characteristics of corporations which have been successful in terms of high repayment rates, significant outreach, and progress towards surplus generation.

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CAPITALIZATION is the statement of capital within the firm - either in the form of money, common stock, long-term debt, or in some combination of all three. It is possible to have too much capital (in which case the firm is overcapitalized) or too little capital (in which case the firm is undercapitalized).

DAYS PAYABLE OUTSTANDING (DPO) is an estimate of the length of time the company takes to pay its vendors after receiving inventory. If the firm receives favorable terms from suppliers, it has the net effect of providing the firm with free financing. If terms are reduced and the company is forced to pay at the time of receipt of goods, it reduces financing by the trade and increases the firms working capital requirements. It is calculated: Days Payable Outstanding = 365 / Payables Turnover (Payables Turnover = Purchases / Payables).

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