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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
Submitted by: mcqstutor Team More Finance & Accounting MCQs →

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