The days sales outstanding (DSO) ratio of a firm identifies:
A)the average length of time a firm must wait after making a credit sale before receiving cash.
B)how effectively the firm uses its plant and equipment to help generate sales.
C)the extent to which a firm's net operating income can safely decline.
D)the profit (earnings) per dollar of sales.
E)how much investors are willing to pay for the firm's stock for each dollar of reported profits.

Question

Quizplus · Accepted Answer

The days sales outstanding (DSO) ratio measures the length of time it takes for a firm to collect payment from its customers for credit sales. A higher DSO indicates longer wait times for cash, which can negatively impact a firm's liquidity and cash flow. Thus, choice A is the correct answer as it identifies the average length of time a firm must wait after making a credit sale before receiving cash. The other choices are not related to the DSO ratio.

The Days Sales Outstanding (DSO) Ratio of a Firm Identifies