Series 79 practice questioneasyFinancial Statement Analysis
A equity capital markets banker sees days sales outstanding rise from 50 days to 62 days while reported revenue growth accelerates. Which conclusion is most appropriate?
- AInventory management is improving materially
- BThe company is reducing working capital needs
- CAccounts payable are being stretched more aggressively
- DCollections are slowing, which can indicate looser credit terms or lower customer quality✓ Correct answer
Explanation
Why D — 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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