What do Days Outstanding (DSO) represent?

Days Outstanding (DSO) is a key metric used to evaluate the efficiency of a company's collection efforts. It specifically represents the number of days it takes for a company to collect payment after a transaction has been made. This metric is crucial for understanding the cash flow of a business, as it indicates how quickly a company is able to convert its credit sales into cash.

When DSO is calculated, it typically reflects the average number of days between the sale of a product or service and the receipt of payment. A lower DSO indicates that a company is effective at collecting its receivables promptly, while a higher DSO could suggest potential issues with cash flow or credit policies.

Understanding DSO helps businesses manage their operations more effectively, ensuring they have sufficient cash on hand to meet obligations and invest in growth opportunities. Thus, the correct answer aptly captures the essence of what DSO represents in the context of financial health and operational efficiency.