Which financial ratio evaluates how many days of sales are locked up in outstanding accounts receivable?
AInventory Turnover Ratio
BDays Sales Outstanding (DSO)
CAsset Turnover Ratio
DAccounts Payable Turnover
Explanation
• Days Sales Outstanding (DSO) formula: $text{DSO} = frac{text{Accounts Receivable}}{text{Total Credit Sales}} times 365$.
• Also known as Average Collection Period, it measures efficiency in collecting credit sales from customers.
• A lower DSO reflects effective credit collection policies and lower bad debt exposure.
Exam Relevance
- Topic: Financial Statement Analysis
- Subtopic: Activity Ratios

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