Series 79 practice questioneasyFinancial Statement Analysis
A buy-side analyst sees days sales outstanding rise from 28 days to 38 days while reported revenue growth accelerates. Which conclusion is most appropriate?
- AInventory management is improving materially
- BCollections are slowing, which can indicate looser credit terms or lower customer quality✓ Correct answer
- CThe company is reducing working capital needs
- DAccounts payable are being stretched more aggressively
Explanation
Why B — Collections are slowing, which can indicate looser credit terms or lower customer quality
Collections are slowing, which can indicate looser credit terms or lower customer quality DSO measures how long it takes to collect receivables, so a rising figure means cash is lagging revenue. During diligence, that trend can point to channel stuffing, weaker customers, or aggressive revenue recognition.
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