Days sales outstanding: Difference between revisions
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(DSO) | (DSO). | ||
A credit measurement ratio calculated by dividing accounts receivable outstanding at the end of time period by the average daily credit sales for the period. | |||
Then Days sales outstanding = | |||
<span style="color:#4B0082">'''Example 1'''</span> | |||
Accounts receivable = EUR 50m. | |||
Daily credit sales = EUR 2m. | |||
Then Days sales outstanding: | |||
= 50 / 2 | |||
= 25 days. | |||
Based on <u>annual</u> total sales - or total sales for any other period - the calculation is modified appropriately for the length of the time period in days (for example 365 days per year). | Based on <u>annual</u> total sales - or total sales for any other period - the calculation is modified appropriately for the length of the time period in days (for example 365 days per year). | ||
<span style="color:#4B0082">'''Example 2'''</span> | |||
Annual credit sales = EUR 730m. | |||
Accounts receivable = EUR 50m. | |||
Then Days sales outstanding: | |||
= (50 / 730) x 365 | |||
= 25 days (as before). | |||
A lower result is generally considered desirable, although the business needs to ensure it does not put itself at a competitive disadvantage to other businesses which offer easier credit terms to customers. | |||
DSO is also sometimes known as Days billing outstanding (DBO) or Days receivables outstanding (DRO). | |||
== See also == | == See also == | ||
| Line 18: | Line 44: | ||
* [[Debtor days]] | * [[Debtor days]] | ||
* [[Ratio analysis]] | * [[Ratio analysis]] | ||
[[Category:Manage_risks]] | |||
[[Category:Financial_products_and_markets]] | |||
Latest revision as of 13:58, 8 October 2020
(DSO).
A credit measurement ratio calculated by dividing accounts receivable outstanding at the end of time period by the average daily credit sales for the period.
Example 1
Accounts receivable = EUR 50m.
Daily credit sales = EUR 2m.
Then Days sales outstanding:
= 50 / 2
= 25 days.
Based on annual total sales - or total sales for any other period - the calculation is modified appropriately for the length of the time period in days (for example 365 days per year).
Example 2
Annual credit sales = EUR 730m.
Accounts receivable = EUR 50m.
Then Days sales outstanding:
= (50 / 730) x 365
= 25 days (as before).
A lower result is generally considered desirable, although the business needs to ensure it does not put itself at a competitive disadvantage to other businesses which offer easier credit terms to customers.
DSO is also sometimes known as Days billing outstanding (DBO) or Days receivables outstanding (DRO).
