How is the days receivable ratio calculated?

The days receivable ratio, also known as the days sales outstanding (DSO), is a measure that indicates how long it typically takes for a company to collect payment after a sale has been made. The formula involves dividing the accounts receivable by total revenue and then multiplying by 365 to express it in terms of days. This approach provides insight into the company's efficiency in managing its credit policies and collection processes.

By using accounts receivable in the numerator, it directly reflects the outstanding amounts owed by customers. When divided by revenue, it normalizes the accounts receivable figure by the company's sales activity, allowing for a clearer understanding of how many days it takes to collect those receivables on average. Multiplying by 365 converts the ratio into a time frame, which is essential for analysis in a business context.

The other options do not accurately represent the calculation of the days receivable ratio. For example, utilizing sales divided by accounts receivable would yield a measurement of turnover rather than the time it takes to collect payments. Similarly, combining accounts payable or cash in the calculations diverts from the fundamental objective of assessing the receivables management directly. Hence, the selection correctly focuses on the relationship between accounts receivable and revenue within the framework of a