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Calculating Financial Ratios Examples

Provides detailed examples of formulas for commonly-used financial ratios, including Days Sales Outstanding (DSO), Days Payable Outstanding (DPO), and Inventory Turnover Ratio.

Days Sales Outstanding

Days sales outstanding (DSO) is used to calculate the average collection period. DSO is a financial ratio that illustrates how well a company's accounts receivables are being managed.

  • Accounts needed include:
Account Name Account Code Account Type
Accounts Receivable (Rollup) AccountsReceivable Current Asset - cumulative
Income Income Income - periodic
Calendar Days in Month CalendarDaysInMonth Assumption - periodic

Formula

DIVF(ACCT.AccountsReceivable, ACCT.Income)*ASSUM.CalendarDaysInMonth

Days Payable Outstanding

Days payable outstanding (DPO) is the ratio of payables to the daily average cost of sales.

  • Accounts needed include:
Account Name Account Code Account Type
Accounts Payable (Rollup) AccountsPayable Current Liability - cumulative
Cost of Goods Sold CostOfGoodsSold Cost of Goods Sold - periodic
Calendar Days in Month CalendarDaysInMonth Assumption - periodic

Formula

DIVF(ACCT.AccountsPayable, ACCT.CostOfGoodsSold)*ASSUM.CalendarDaysInMonth

Inventory Turnover Ratio

The speed with which a company can sell inventory is a critical measure of business performance. A low turnover implies weak sales and, therefore, excess inventory. A high ratio implies either strong sales and/or large discounts.

  • Accounts needed include:
Account Name Account Code Account Type
Cost of Goods Sold CostOfGoodsSold Cost of Goods Sold - periodic
Inventory Inventory Current Asset - cumulative

Formula

DIVF(ACCT.CostOfGoodsSold, ACCT.Inventory)

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