Receivables Turnover and Days of Sales Outstanding (DSO)

Receivables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its receivables.

The receivables turnover ratio measures the number of times the company collected its receivables during a specified period.

For example, a receivables turnover ratio of 10 means that the receivables have been collected 10 times in the specified period, usually a year. A variant of receivables turnover is Days of Sales Outstanding (DSO) or average collection period. A DSO of 30 means that on average the company had 30 days worth of sales outstanding (yet to be collected).

Formulas

$Receivables\ Turnover = \frac{Revenue}{Average\ Receivables}$