Understanding DSO (Days Sales Outstanding)
Hello,
I'm in the process of writing a financial application and am attempting to automate the calculation of days sales outstanding for the purposes of identifying revenue manipulation in public companies. I'm using a model similar to what this course teaches: https://www.coursera.org/learn/accounting-analytics/lecture/27BHG/Review-of-Financial-Statements-1-1
I'm somewhat confused though. In the calculation for days receivable in the above video (around 6 min in) , the professor uses a formula of
Days Receivable = (Average AR over the past 5 quarters / TT Revenue)*365.
My question is why is he using the past 5 quarters instead of the past 4? Don't we want the average AR over the same period we are using to calculate TTM revenue (e.g. the past 4 quarters)?
I'm not an accountant so I might be missing something, but is it possible this is a mistake in the professor's presentation? It changes the DSO somewhat significantly in my calculations and I'm not sure which one is right or why I should be averaging 5 quarters of AR to divide by only 4 quarters of revenue.
Thanks!