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Day sales outstanding

Day sales outstanding

Description

Day sales outstanding (DSO) ratio is the same as receivable turnover ratio, only it provides information on company’s customers’ debts (accounts receivable) collection effectiveness in days, and not in times. Data needed to calculate this ratio is collected from balance sheet and income statement.

Norms and limitations

Low value of this ratio shows that the company needs less days to collect its debts. As more days mean longer debts collection period.

However in general there is no norm for the DSO, as it depends on the industry. A very low value of this ratio shows that the company mainly works on cash basis.

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