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Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers by Joe Knight, Karen Berman

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26

Your Balance Sheet Levers

Most companies use some of their cash to finance customers’ purchase of products or services. That’s the “accounts receivable” line on the balance sheet—the amount of money customers owe at a given point in time, based on the value of what they have purchased before that date.

The key ratio that measures accounts receivable, as we saw in part 5, is days sales outstanding, or DSO—that is, the average number of days it takes to collect on these receivables. The longer a company’s DSO, the more working capital is required to run the business. Customers have more of the company’s cash in the form of products or services not yet paid for, so that cash isn’t available to buy inventory, deliver more services, and so on. ...

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