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Formula Examples: Calculating Financial Ratios

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

Example 1: 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

Example 2: 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

Example 3: 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)