Question

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

Answer 1

The days sales outstanding (DSO) ratio of the firm is 67 days.

Step-by-step explanation:

In this question we use the formula of days sales outstanding which is shown below:

Day sale outstanding = Accounts receivable ÷ annual sales × total number of days in a year

where,

accounts receivable is $120 million

Annual sale is $650 million

And, we assume 365 days in a year

Now, put these values on the above equation.

So, the Days sales outstanding would be equal to

= $120 million ÷ $650 million × 365 days

= 0.184615 × 365 days

= 67 days

Hence, the days sales outstanding (DSO) ratio of the firm is 67 days.