DSO and DSI as forecasters of GPM change

UK Discussion in 'General Accountancy Discussion' started by Ketki, Dec 6, 2017.

  1. Ketki


    Dec 6, 2017
    Likes Received:
    Hi all,

    Bit of a left-field question but thought I'd rack the brains of this forum. On a recent client engagement we were calculating Day Sales Outstanding and Day Sales Inventory as ratios to see any significant changes year-on-year. We noticed that DSO had increased and DSI decreased. The question from my junior was:

    - What do both of these mean when considered with gross profit margin for this year (which had fallen) and are they indicators of where it's likely to move next year (and why)?

    Struggling to provide an answer other than DSO increasing being a sign of potentially worsening customer credit and DSI evidencing less efficient inventory management.

    Ketki, Dec 6, 2017
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