DSO Ratio, or Days Sales Outstanding Ratio, is a financial ratio that illustrates how well a company's accounts receivables are being managed. In Finance, a financial ratio or accounting ratio is a ratio of selected values on an enterprise's Financial statements There are many standard ratios used Accounts receivable (A/R is one of a series of Accounting transactions dealing with the Billing of customers who owe money to a person company or organization for
DSO ratio can be expressed as:
- DSO ratio = Accounts Receivable / Average sales per day, or
- DSO ratio = Accounts Receivable / (Annual Sales / 360 days)
For purposes of this ratio, a year is considered to have 360 days.
As with all financial ratios, a company's DSO ratio should be considered alongside others in its industry. Examining the DSO ratio as it changes over time can often point out trends. Generally speaking, though, higher DSO ratio can indicate a customer base with credit problems and/or a company that is deficient in its collections activity. [1]
References
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