# Days' sales outstanding

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Related to Days' sales outstanding: Days Payable Outstanding

## Days' sales outstanding

Average collection period.

## Days' Sales Outstanding

In accounting, a company's average collection period. Usually calculated monthly, it indexes the relationship between outstanding accounts receivable and total sales over a given period and is a common tool in measuring liquidity. Tracking trends in days' sales outstanding can also indicate the level of credit risk a company is willing to extend at different points of time. It is also called the collection ratio.
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Example: (\$ IN MILLIONS) 2014 2013 Revenue \$12,000 \$10,000 Cost of goods sold \$4,000 \$3,200 Inventory \$1,600 \$2,500 Accounts receivable \$680 \$640 Accounts payable \$1,100 \$1,300 Average inventory (\$1,600 + \$2,500)/2 = \$2,050 Average accounts receivable (\$680 + \$640)/2 = \$660 Average accounts payable (\$1,100 + \$1,300)/2 = \$1,200 Days' inventory outstanding \$2,050/(\$4,000/365 days) = 187.1 days Days' sales outstanding \$660/(\$12,000/365 days) = 20.1 days Days' payables outstanding \$1,200/(\$4,000/365 days) = 109.5 days Cash conversion cycle 187.1 + 20.1 - 109.5 = 97.7 days
To highlight the insights this formula provides, consider a days' sales outstanding (DSO) example, where days' sales outstanding = accounts receivable/daily sales.

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