Definition
Accounts receivable (AR) represents sales made on credit awaiting payment. Rising AR faster than revenue may indicate collection problems or aggressive revenue recognition. Days Sales Outstanding (DSO) measures collection efficiency.
Formula
DSO = (Accounts Receivable / Revenue) × 365
Example
A company with $30M AR and $365M annual revenue has 30 days DSO, meaning on average it collects payment in 30 days. Industry average might be 45 days.
FAQ
What is Accounts Receivable?
Money owed to the company by customers for goods or services delivered.
How do you calculate Accounts Receivable?
A common formula for Accounts Receivable is: DSO = (Accounts Receivable / Revenue) × 365
Why is Accounts Receivable important?
Accounts Receivable helps investors evaluate financial statements and make more informed decisions.