- Mon - Fri: 9:00 am – 5:00 pm
- Houston, TX
- 832-406-4873
Days Sales Outstanding Ratio
A printable cheatsheet with calculations
and notes
Instead of calculating each ratio individually
Let our ratio tool instantly calculate your ratios. Input your financial data once and get multiple results.
Days Sales Outstanding Ratio
Days Sales Outstanding Ratio =
Total AR
Net Credit Sales
x Number of days
INTERPRETATION
The days sales outstanding ratio measures the number of days a company takes to convert its sales into cash.
The DSO ratio is important to business owners and managers because it represents the days a business holds debt on its books, which can impact cash flow.
Note: expanded calculation
Current accounts receivables balance, dividing it by your credit sales revenue during the measured period, then multiplying that number by the number of days in the measured period.
We don’t include cash sales in our calculation since they don’t affect the accounts receivable or the time taken to recover dues.
EXAMPLE
M&M Company made around $300,000 in credit sales and $200,000 in accounts receivables. Its monthly DSO is
(Total AR/Net Credit Sales) x (Number of days) = (200,000/300,000) x 30 = 20 days
M&M Company has recovered its dues in 20 days, which means its DSO is 20 days. That’s good because a DSO below 45 days implies prompt-paying customers and stable cash flow.
BENCHMARK: HA, PG, EB, ROT
In general, a DSO value below 45 days is considered good.
It shows that a company will have cash for operations and won’t have to write off accounts receivable as bad debts.
Days Sales Outstanding Ratio:
ABBREVIATION KEY:
ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark
DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.