The formula to calculate the Days Outstanding is:
\[ \text{D} = \left(\frac{\text{AR}}{\text{CS}}\right) \times \text{N} \]
Where:
Days outstanding, also known as days sales outstanding (DSO), is a financial metric that measures the average number of days it takes for a company to collect payment after a sale has been made. It is an important indicator of a company’s liquidity and efficiency in managing its accounts receivable. A lower DSO indicates that the company is collecting payments more quickly, which can improve cash flow and reduce the risk of bad debts. Conversely, a higher DSO may suggest that the company is experiencing delays in collecting payments, which could impact its financial stability.
Let's assume the following values:
Using the formula to calculate the Days Outstanding (D):
\[ \text{D} = \left(\frac{50000}{200000}\right) \times 30 = 7.50 \text{ days} \]
The Days Outstanding is 7.50 days.