There are several factors to consider when analyzing a company’s days sales outstanding. These include: • The company’s days sales outstanding relative to its industry • Trends in the company’s days sales outstanding over time • Caveats that can make days sales outstanding misleading A company might have a lower days sales outstanding than its competitors because: • The company has superior credit and collection policies (operational excellence) • The company is larger and is using its size to negotiate better credit terms (size advantage) • The company is pursuing a different strategy than its peers • The company is selling its receivables (factoring) When it comes to long-term trends, an increase in days sales outstanding could mean: • General economic conditions have deteriorated (e.g., there’s a recession) • One or more of the company’s main customers is experiencing financial difficulties • The company has relaxed its credit policy to …
