In 30 seconds
- DSO, or the average collection period, divides accounts receivable by sales and multiplies by 365: the number of days the company takes to collect.
- Microsoft had a DSO of 89 days in fiscal 2026 ($80,876 million of receivables on $331,839 million of revenue), very stable from one year to the next.
- The trend matters more than the level: a DSO that rises several years in a row while sales grow is a sign worth investigating.
- Under Armour's DSO went from 33 days in 2014 to 47 in 2016 while it was pulling orders forward; in 2021 it paid the SEC $9 million to settle the case.
- Watch out for seasonal year-ends, invoice sales and acquisitions: they move DSO without any change in how the company actually collects.
Introduction
Between 2014 and 2016, Under Armour went from taking about 33 days to collect from its customers to taking 47. Its sales were growing more than 20% a year; what its customers owed it, more than 40%. On May 3, 2021, the company agreed to pay the SEC $9 million to settle charges that it had failed to tell investors it was pulling orders forward to hit analysts' revenue forecasts. Long before that, the collection period was right there in its annual reports, for anyone who cared to look.
Explanation
DSO (days sales outstanding), also called the average collection period, measures how many days pass, on average, between a sale and the cash coming in. A sale on credit is booked as revenue on the income statement the day the product is delivered, but the money arrives later. In the meantime it sits on the balance sheet as accounts receivable.
Picture a small-town general store that lets its neighbors buy on credit and writes it all down in a notebook. If it sells $36,500 a year and the notebook adds up to $3,000, it collects after 30 days on average. If one year the notebook adds up to $6,000 on the same sales, something has changed: either the neighbors are paying later, or someone isn't going to pay at all, or the owner has written down sales he hasn't made yet. All three cost him money, even though his sales haven't budged.
Why it matters to you as an investor
Profit that never gets collected doesn't pay dividends or fund buybacks. When DSO rises, the company needs more money to finance its customers, and that shows up in free cash flow, which grows more slowly than earnings. Receivables are part of current assets, so they also inflate the current ratio: a customer who doesn't pay doesn't cover a single bill.
Why does DSO rise? Most often, customers are paying later, either because they're short of cash or because the company is giving them more time in order to sell them more. The customer mix can also shift: more sales to large companies or government agencies, which pay in 60 or 90 days. And then there's the case that hurts shareholders most, pulled-forward or inflated sales: the sale is booked today, but the money will take a long time to arrive, or may never arrive at all.
Formula
DSO (average collection period) = Accounts receivable / Revenue × 365
Accounts receivable = what customers owe at year-end, net of the allowance for doubtful accounts (balance sheet)
Average receivables variant = ((Receivables at the start of the year + Receivables at year-end) / 2) / Revenue × 365
Receivables turnover = Revenue / Accounts receivable = 365 / DSO
Example
The table below compares the average collection period, in days, of four big software companies: Microsoft, Oracle, Adobe and Salesforce. Read it as the number of days each one takes, on average, to collect on its sales. Note: the table uses the trailing twelve months and the stock page's method, so Salesforce won't show the 126 days at its fiscal year-end that you'll see in the pitfalls section. Compare each company with itself before drawing conclusions.
Step by step: Microsoft, fiscal 2026 (year ended June 30, 2026, Form 10-K annual report, millions of dollars)
1. Accounts receivable at June 30, 2026: 80,876.
2. Revenue for fiscal 2026: 331,839.
3. DSO = 80,876 / 331,839 × 365 = 89 days.
4. A year earlier, in fiscal 2025, it was 91 days ($69,905 million of receivables on $281,724 million of revenue).
Microsoft takes about three months to collect, and it does so consistently: its revenue rose 18% and its receivables 16%. It bills large companies and governments under annual contracts, and they pay on terms. With the average receivables variant, 2026 DSO drops to 83 days. Use either one, but always the same one when you compare.
Your turn. Adobe closed fiscal 2025 on November 28, 2025, with $2,344 million of accounts receivable and $23,769 million of revenue. Work out its DSO.
Before you look: do you think Adobe collects faster or slower than Microsoft? Answer: 36 days, less than half. One likely explanation is that a good share of its subscriptions are paid upfront by card by individuals and small businesses. Two companies in the same sector, two very different customer bases.
Real-data example
| Company | Ticker | Days sales outstanding (days) |
|---|---|---|
| Microsoft Corporation | MSFT | 89.0 |
| Oracle Corporation | ORCL | 57.9 |
| Adobe Inc. | ADBE | 29.2 |
| Salesforce, Inc. | CRM | 52.5 |
How to read it
How to read it
The trend against sales matters more than the level: a DSO that rises several years in a row while sales grow is a sign worth investigating. Rough ranges (Kaplio's stock page doesn't apply a DSO threshold):
| Sector | Good | Normal | Watch |
|---|---|---|---|
| Supermarkets and restaurants (paid at the register) | under 10 days | 10-20 days | over 20 days |
| Consumer goods and apparel (sell to retailers) | under 35 days | 35-50 days | over 50 days |
| Industrials and machinery | under 50 days | 50-80 days | over 80 days |
| Enterprise software | under 60 days | 60-90 days | over 90 days |
Pitfalls and limitations
1. A seasonal year-end. Salesforce closes its fiscal year on January 31, right after billing a large batch of annual contracts. At January 31, 2026, it had $14,339 million of receivables on $41,525 million of revenue: 126 days. It's not that its customers aren't paying: the balance sheet is drawn up on the worst day of the year for this ratio. Compare each company with itself, at the same year-end date.
2. Selling the invoices. A company can sell its receivables to a bank (factoring) and cut DSO overnight without customers paying a day sooner. If DSO drops suddenly, look in the notes for sales of receivables.
3. Acquisitions. Buying another company close to year-end brings all of its receivables onto the balance sheet but only a few weeks of its sales into revenue. DSO rises without any collection problem at all.
4. Captive finance arms. Some machinery makers finance their customers through a finance subsidiary. Those loans aren't everyday unpaid invoices: strip them out before calculating DSO.
Case in point: Under Armour, 2014-2016
With the annual reports Under Armour filed with the SEC, the math is simple. In 2014 it had $279.8 million of receivables on $3,084.4 million of revenue: a DSO of 33 days. In 2015, $433.6 million on $3,963.3 million: 40 days. In 2016, $622.7 million on $4,825.3 million: 47 days. Sales grew 28.5% in 2015 and 21.8% in 2016; receivables grew 55.0% and 43.6%. Every year, the company took longer to collect on what it sold.
On May 3, 2021, the SEC told part of the story: for six straight quarters, starting in the third quarter of 2015, Under Armour had pulled forward $408 million of orders that customers wanted delivered later, in order to meet analysts' revenue forecasts, without telling investors. The company paid $9 million without admitting or denying the findings, and the SEC did not charge it with breaking accounting rules. DSO proved nothing on its own. But it was the clue any shareholder could find in the annual reports: sales growing faster than the cash coming in. In 2017, Under Armour lost $48.3 million.
Practice on Kaplio
Frequently asked questions
What is DSO in finance?
It's days sales outstanding, also called the average collection period: the number of days a company takes, on average, to collect on its sales. You get it by dividing accounts receivable by the year's revenue and multiplying by 365. Microsoft had a DSO of 89 days in fiscal 2026, because it bills large companies that pay on terms.
What is a good DSO?
It depends on how the industry gets paid. As a rough guide, supermarkets and restaurants collect in under 10 days, consumer goods companies in under 35, industrial companies in under 50 and enterprise software companies in under 60. More than the level, watch the trend: a DSO rising year after year faster than sales deserves a closer look.
What is the difference between DSO and DPO?
DSO measures how many days a company takes to collect from its customers; DPO, how many days it takes to pay its suppliers. Collecting early and paying late frees up cash: that's what supermarkets do, getting paid at the register and paying their suppliers on terms. A healthy company keeps an eye on both at once.
What does a high DSO mean?
That the company takes a long time to collect on what it sells and needs more money to finance its customers. It can be normal for its sector, as in enterprise software, or a warning sign if it climbs year after year faster than sales, as happened at Under Armour between 2014 and 2016.