Collateral and Days sales outstanding: Difference between pages
imported>Doug Williamson (Add link.) |
imported>Baseby2@msn.com m (Inclusion of rationale for measure) |
||
| Line 1: | Line 1: | ||
(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. | |||
<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). | |||
<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 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 == | ||
* [[Credit]] | |||
* [[Debtor days]] | |||
* [[Ratio analysis]] | |||
* [[Credit | |||
* [[ | |||
* [[ | |||
Revision as of 09:06, 21 November 2018
(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 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).
