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Unformatted text preview: 1 Looking at the DSO, it appears that customers are paying significantly faster in the second quarter than in the first. However, the receivables balances were created assuming a constant payment pattern, so the DSO is giving a false measure of customers' payment performance . The underlying cause of the problem with the DSO is the seasonal variability in sales. If there were no seasonal pattern, and hence sales were a constant $200 each month, then the DSO would be 27 days in both March and June, indicating that customers' payment patterns had remained steady. 1 Even if one confined ads to the months which contributed to receivables, Feb/Mar and May/Jun, first quarter ADS = $8.33 and DSO = 30 days, while half-year ads = $5.00 and DSO = 22 days, differences would still appear. Mini Case: 27 - 21...
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- Spring '08