Days sales outstanding ratio
- Days sales outstanding ratio
-
DSO ratio, or days sales outstanding ratio, or days' sales outstanding ratio, is a financial ratio that illustrates how well a company's accounts receivables are being managed.
A DSO ratio can be expressed as:
- DSO ratio = accounts receivable / average sales per day, or
- DSO ratio = accounts receivable / (annual sales / 365 days)
For purposes of this ratio, a year is considered to have 365 days.
As with all financial ratios, a company's DSO ratio should be considered alongside others in its industry. Examining the DSO ratio as it changes over time can often point out trends. Generally speaking, though, higher DSO ratio can indicate a customer base with credit problems and/or a company that is deficient in its collections activity.[1] A low ratio may indicate the firm's credit policy is too rigorous, which may be hampering sales.
See also
References
- ^ Houston, Joel F.; Brigham, Eugene F. (2009). Fundamentals of Financial Management. [Cincinnati, Ohio]: South-Western College Pub. p. 90. ISBN 0-324-59771-1.
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