In short
Days sales outstanding is the average number of days it takes to collect receivables: 365 divided by the receivables turnover (net credit sales ÷ average accounts receivable).
Key takeaways
- A rising figure can signal looser credit terms, weaker collections or aggressive revenue recognition.
- It is one part of the cash conversion cycle, with days in inventory and days payables outstanding.
- Compare it with the company's credit terms and with peers.
Example
Net credit sales of $730,000 and average receivables of $60,000: turnover is about 12.2, so about 30 days.
Where it's tested
BAR: Financial Statement Analysis — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Net credit sales were $3,650,000 and average accounts receivable was $365,000. Using a 365-day year, what is the average collection period (days' sales outstanding)?