Days Sales Outstanding

Days Sales Outstanding is an important financial indicator showing both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash.

Days Sales Outstanding

Days Sales Outstanding is an important financial indicator showing both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash.


Days Sales Outstanding Formula

Days Sales Outstanding provides good understanding of the company's internal collection efficiency, and requires three pieces of information for calculation:

  • Total Receivables
  • Total credit sales for the period analyzed
  • The Number of days in the period analyzed

Best Possible Days Sales Outstanding yields insight into delinquencies since it uses only the current portion of receivables. As a measurement, the closer the regular figure is to the Best Possible, the closer the receivables are to the optimal level. Best Possible Days Sales Outstanding requires three pieces of information for calculation:

  • Current Receivables
  • Total credit sales for the period analyzed
  • The Number of days in the period analyzed
Best Possible Days Sales Outstanding = (Current Receivables/Total Credit Sales) x Number of Days

Interpretation of Days Sales Outstanding

Having fewer days of payables on the books than competitors means some are getting better credit deals than others. If a company is buying from a customer and looks at its days receivable, that company doesn't need to give them any shorter to pay them. Businessmen look at a range of competitors' days payable in order to establish benchmarks and maximize profits.

Having a greater days payables outstanding may indicate the Company's ability to delay payment and conserve cash. This could arise from better terms with vendors. The Days Payable Outstanding also shows how long a company can make interest on the money made.

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