Which of the following statements is CORRECT?
A)If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average, and was increasing and trending still higher, this would be interpreted as a sign of strength.
B)A high average DSO indicates that none of its customers are paying on time. In addition, it makes no sense to evaluate the firm's DSO with the firm's credit terms.
C)There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things.
D)A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.
E)If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Question

Quizplus · Accepted Answer

Days' sales outstanding (DSO) is the number of days it takes for a firm to collect its accounts receivable. If a firm increases its sales while holding its accounts receivable constant, then the DSO will decline because the amount of outstanding sales is being spread across a larger revenue base.

Which of the Following Statements Is CORRECT