Business, Legal & Accounting Glossary
Days Sales Outstanding. Accounts receivable divided by sales for a given quarter, times 91. This number helps determine whether a company is attempting to disguise weakness in its sales.
Days Sales Outstanding (DSO) is a measure of how long it takes a company to collect money that it is due.
DSO = \frac{Average\ accounts\ receivable}{\frac{Sales}{No.\ days\ in\ period}}
Days Sales Outstanding (DSO, for short) is one of the components of the cash conversion cycle, the measure of how quickly a company can move cash through the business. DSO itself measures how long cash is tied up outside of the company accounts receivable after a sale has been made, but before the company receives the cash.
A well-managed company should have low and declining DSO levels, indicating that the company has the power to insist on being paid for its goods or services. If the DSO value is increasing or is longer than comparable companies, then it could be losing control of its ability to receive payment and it might have to begin to write-off portions of its accounts receivable as noncollectable. This, of course, is a bad thing.
Because different industries have different levels of “normal,” be sure to compare this among comparable companies, not across industries.
DSO
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This glossary post was last updated: 21st November, 2021 | 0 Views.