Days Sales Outstanding (DSO)
factor.formula
Days Sales Outstanding (DSO):
in,
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It stands for Accounts Receivable Outstanding Days, expressed in days, which indicates the average time required to collect sales revenue.
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It represents the number of times that accounts receivable are converted into cash within a certain period of time (usually one year). The calculation formula is: sales revenue / average accounts receivable balance. This indicator reflects the liquidity of accounts receivable.
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Here, we assume that a year is 360 days to simplify the calculation. In actual applications, 365 days or the actual number of trading days can also be used.
factor.explanation
Days Sales Outstanding (DSO) is a key operating capacity indicator that directly reflects the efficiency of a company in managing accounts receivable. A lower DSO generally means that the company has a more efficient credit management process and can convert sales into cash faster, thereby reducing funding pressure and lowering the risk of bad debts. Investors and creditors pay attention to DSO to assess the financial health and operational efficiency of a company. A high and continuously increasing DSO may indicate that the company is facing cash flow problems, poor credit risk management, or irrational sales strategies. When comparing industries, differences in business models and settlement methods in different industries will affect the reasonable range of DSO, so it is necessary to compare the same industry. At the same time, it is necessary to analyze the historical DSO change trend of the company.