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A high DSO number can indicate that the cash flow of the business is not ideal. It varies by business, but a number below 45 is considered good. It's best to track the number over time.
To calculate your A/R Sales ratio, divide your net accounts receivable by your net sales. A lower ratio means a lower percentage of your sales are done on credit and you have low liquidity risk.
What is day sales in accounts receivable? In the formula, the accounts receivable is divided by the credit sales for a specified number of days, and then multiplied by that number of days. The result is the days sales average, which can give insight into how a business generates cash flow.
To calculate DSO, divide the total accounts receivable for a given period by the total credit sales for the same period, and multiply the result by the number of days in the period. Days Sales Outstanding = (Accounts Receivable/Net Credit Sales)x Number of days.
What is a Good Accounts Receivable Turnover Ratio? A good accounts receivable turnover ratio is 7.8. This means that, on average, a company will collect its accounts receivable 7.8 times per year. A higher number is better, since it means the company is collecting its receivables more quickly.