© 2000 John Petroff
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© 2000 John Petroff |
Comments
[This page is open to students, faculty and practitioners for questions and comments pertaining to this chapter and received by email.]
DSO Days Sales Outstanding ratio, as well as DSI Days Sales in Inventory and DPO Days Purchases Outstanding ratios are calculated with 365 days in a year. Some textbooks (such as Weston and Brigham) use 360 days rather than 365 days. It is common to use 360 days in finance for the calculation of discounted values of commercial paper, treasury bills and repurchase agreements. However, Robert Morris Associates uses 365 days for the calculation of its ratios. Since the examples in this text compare ratios to those of RMA, 365 days are used as well.
One of the most common terms offered on American invoices is: 2/10 Net 30. They mean that the purchaser can deduct two percent from the amount of the invoice if paying within the first 10 days from the date on the invoice, or pay the full amount up to 30 days from the date on the invoice. Converting the 2% on twenty days to the implied annual rate gives 36% = 0.36 = 2 (365/20).
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