Days Sales Outstanding (DSO)
Definition
The average number of days taken to collect payment after a sale, calculated as average accounts receivable divided by revenue, times the days in the period. Rising DSO is usually the earliest warning of a cash-flow problem.
Related Terms in Financial Analysis
Job Costing
Assigning materials, labour and overhead to a specific job, project or contract so profitability can be read per job rather than only in aggregate. Standard practice in construction, agencies, manufacturing to order and professional services.
Purchase Price Variance (PPV)
The difference between the price actually paid for a purchase and the standard or expected price, times the quantity bought. A persistent unfavourable variance points at supplier pricing, buying practice, or an out-of-date standard cost.
Current Ratio
Current assets divided by current liabilities, a measure of whether a business can meet obligations falling due within a year. Above 1 means current assets cover current liabilities; what counts as healthy varies sharply by industry.
Quick Ratio
A stricter liquidity test than the current ratio, dividing only cash, marketable securities and receivables by current liabilities. Inventory and prepayments are excluded because they cannot be relied on to convert to cash quickly. Also called the acid-test ratio.
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