Days sales outstanding or DSO as it is often called, is a ratio that measures the average number of days a company takes to collect its accounts receivable. When a company's DSO is short, it tells us that the company is faster at collecting payments from customers. This also means you are able to use the cash from sales sooner.
When combined with days payable outstanding and days inventory outstanding, DSO is a component of the cash conversion cycle.
If a company has credit sales of $1.5 million over the course of a year and an accounts receivable balance of $150,000, we would calculate the DSO by:
What does the Output tell Us?
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