This Days Sales Outstanding Calculator accurately uses the standard formula to assess a company’s accounts receivable management efficiency. It is a critical operational metric for cash flow analysis.
Welcome to the **Days Sales Outstanding (DSO) Calculator**. DSO is a key efficiency ratio that measures the average number of days it takes for a company to collect payment after a sale has been made. It links four core variables: Accounts Receivable ($AR$), Net Credit Sales ($NCS$), the number of Days in the Period ($D$), and Days Sales Outstanding ($DSO$). Input any three of these values to solve for the missing fourth component.
Days Sales Outstanding Calculator
Days Sales Outstanding Formula
The core DSO equation is:
$$ DSO = \frac{AR}{NCS} \times D $$
1. Solve for Days Sales Outstanding (DSO):
$$ DSO = \frac{AR}{NCS} \times D $$
2. Solve for Accounts Receivable (AR):
$$ AR = \frac{DSO \times NCS}{D} $$
3. Solve for Net Credit Sales (NCS):
$$ NCS = \frac{AR \times D}{DSO} $$
4. Solve for Days in Period (D):
$$ D = \frac{DSO \times NCS}{AR} $$
Formula Source: Investopedia – Days Sales Outstanding
Variables Explained
- AR – Accounts Receivable: The money owed to the company by customers who have purchased goods or services on credit.
- NCS – Net Credit Sales: The total sales made on credit during the period, net of any returns or allowances.
- D – Days in Period: The total number of days covered by the sales figure (e.g., 365 for a year, 90 for a quarter).
- DSO – Days Sales Outstanding: The average number of days it takes the company to collect its credit sales.
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What is Days Sales Outstanding (DSO)?
Days Sales Outstanding (DSO) is a metric used to evaluate a company’s effectiveness in managing its credit sales and collecting payments. A low DSO value generally indicates that a company is efficient at collecting its accounts receivable, which contributes to a healthier cash flow. Conversely, a high DSO suggests that the company is taking too long to collect payments, potentially leading to cash flow problems or indicating collection issues.
DSO is calculated by taking the amount of Accounts Receivable, dividing it by Net Credit Sales for the period, and then multiplying the result by the number of days in that period. It’s often compared against the company’s stated credit terms (e.g., net 30, net 60). If the DSO significantly exceeds the credit terms, management should investigate the reasons.
While a lower DSO is usually better, the ideal value depends heavily on the industry. Companies in industries that primarily deal in cash (like retail) will have a much lower DSO than those that rely on long credit periods (like manufacturing or construction). Consistency and trending are often more important than the absolute number.
How to Calculate Accounts Receivable (Example)
Assume a **Days Sales Outstanding (DSO)** of **45 days**, **Net Credit Sales (NCS)** of **$365,000**, and **Days in Period (D)** of **365 days**.
- Determine the Missing Variable: Accounts Receivable ($AR$) is missing.
- Apply Formula: $AR = (DSO \times NCS) / D$.
- Calculate the Daily Sales Rate: $NCS / D = \$365,000 / 365 = \$1,000 \text{ per day}$.
- Substitute Values: $AR = 45 \times \$1,000$.
- Determine Accounts Receivable: $AR = \$45,000$. The company’s Accounts Receivable is **$45,000.00**.
Frequently Asked Questions (FAQ)
Generally, a **low** DSO is better, as it means the company is converting its credit sales into cash faster. However, an extremely low DSO might suggest overly strict credit terms, potentially losing sales to competitors.
How often should DSO be calculated?DSO is typically calculated at the end of each fiscal period, such as quarterly or annually, to monitor trends in collection efficiency and compare against benchmarks.
What factors can cause DSO to increase?An increase in DSO can be caused by inefficient collections procedures, a large number of sales to high-risk customers, a downturn in the economy, or relaxing credit terms to boost sales.
What is the difference between Accounts Receivable Turnover and DSO?Accounts Receivable Turnover is the number of times the average accounts receivable balance is collected during a period. DSO is the number of *days* it takes to collect those receivables. They are inversely related: high turnover means low DSO, and vice versa.