Define days sales outstanding (DSO). What can be learned from it? How is it affected by sales fluctuations?
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Define days sales outstanding (DSO). What can be learned from it? How is it affected by sales fluctuations? |
Verified Answer
Days sales outstanding are the average number of days that the company takes to collect payment from its debtors.
Lower the days sales outstanding, the shorter the time a company takes to collect receivables.
Days sales outstanding indicates how quickly the customers are paying off as well as the average number of sales the company has made during an accounting period.
The increase in sales will lead to an increase in the denominator as well as the numerator, but the denominator will increase at a rate higher than the numerator. As a result, days sales outstanding will increase even if customers are paying as quickly as before.
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