Statement analysis
One elevated reading almost never is. What carries information is the gap between receivables growth and revenue growth, and how many consecutive years it stays open. Here is the calculation, with a threshold.
7 min read· Corva Research
The short version
No. A rising DSO is not by itself a red flag, and treating it as one will make you wrong about most of the companies you apply it to. Days sales outstanding, the average number of days between booking a sale and collecting the cash, moves for a dozen ordinary reasons. A big order shipped on 28 December. A retailer that pays in 60 days displacing one that paid in 30. A single customer in trouble.
The real flag is narrower and easier to test. It fires when receivables grow faster than revenue, and keep doing it across consecutive periods. A timing effect reverses. A shift in customer mix settles at a new level and stops. Neither produces a gap that stays open for three years, which is why the count of periods, not the size of the reading, is what to measure.
So the question is not "is DSO high". It is: over five years, how many times did receivables growth beat revenue growth, and by how much.
DSO is receivables divided by revenue, times 365. At 40 days, the company is carrying roughly forty days of sales it has recognised as revenue but has not yet been paid for.
The level itself is close to uninterpretable across companies. A supermarket collects at the till and runs a DSO near zero. A defence contractor billing a government on milestones runs several times a software company's number, and both are healthy. Comparing a company's DSO to an industry average tells you about the industry.
Comparing it to its own history tells you about the company. That is the only comparison worth making.
Five years of two numbers off the filings, and one subtraction. Both sit on the face of the statements, so this takes ten minutes and needs no model.
Then read the sequence, not any single number:
Ten points and two years are conventions, not standards. There is no authority that sets them and a different reader could defend 15 points and three years. What matters is that the threshold is fixed before you look, because the failure mode here is reading a number and then choosing a threshold that lets you keep the position.
One refinement for fast growers, and it is not optional. If revenue accelerated through the year, the year-end receivable reflects a fourth quarter much larger than the annual average, and full-year DSO overstates the deterioration. Divide receivables by fourth-quarter revenue and multiply by 91 instead. Both numbers, both years. The worked example below shows how much of a difference that makes.
Under Armour is a useful case because the arithmetic is stark and what happened afterwards is settled and on the record rather than a matter of opinion. Every figure below comes from the company's own Form 10-K for the year in question.
$ thousands. Fiscal year ends 31 December. Growth and DSO computed from the figures shown.
| Year | Revenue | AR, net | Rev growth | AR growth | Gap, pts | DSO |
|---|---|---|---|---|---|---|
| 2013 | 2,332,051 | 209,952 | n/a | n/a | n/a | 32.9 |
| 2014 | 3,084,370 | 279,835 | +32.3% | +33.3% | +1.0 | 33.1 |
| 2015 | 3,963,313 | 433,638 | +28.5% | +55.0% | +26.5 | 39.9 |
| 2016 | 4,825,335 | 622,685 | +21.8% | +43.6% | +21.8 | 47.1 |
| 2017 | 4,976,553 | 609,670 | +3.1% | -2.1% | -5.2 | 44.7 |
Source: Under Armour Form 10-K for FY2015, FY2016 and FY2017, consolidated balance sheets and statements of income, as originally filed.
Read the gap column downward. 2014 is clean: receivables and revenue grew within a point of each other, which is what a company growing 32% a year on stable terms looks like. Then the gap opens to 26.5 points and stays open at 21.8 the following year. Fourteen days of DSO across two years.
Two consecutive years past the threshold. That is a flag under the rule above, and it was visible in the FY2016 10-K, filed before revenue growth fell from 21.8% to 3.1%.
The check does not tell you why. It tells you that the why now has to come from the filing, and that you are entitled to ask for it.
What came later is a matter of public record. In May 2021 the SEC announced a settled action finding that Under Armour had accelerated, or "pulled forward," $408 million in existing orders that customers had asked to have shipped in future quarters, across six consecutive quarters beginning in the third quarter of 2015, and had not disclosed the practice. The company paid a $9 million penalty without admitting or denying the findings. The charges concerned disclosure, not a breach of accounting standards.
Note the dates. The six quarters begin in the third quarter of 2015, which is the first year the gap opened. A reader running this calculation in early 2017 would not have known any of that. They would have known that two years of receivables growth had outrun revenue growth by more than twenty points each time, and that the company's explanation was worth asking for.
Receivables are reported net of an allowance for doubtful accounts, management's own estimate of what will not be collected. It is one of the few places in the statements where an executive puts a number on their own optimism.
Compute it as a share of gross receivables, meaning the net figure plus the allowance. If receivables jump and that ratio holds flat or falls, management is asserting the new receivables are at least as collectible as the old ones. That is a claim, not an observation, and you can weigh it against what you know about who owes the money.
Under Armour's ratio ran 1.30% at the end of 2014 and 1.34% at the end of 2015, on receivables that had grown 55.0%. It then went to 1.78% for 2016 and 3.13% for 2017. The allowance caught up afterwards, not during.
The FY2015 filing is candid about one reason it might need to. Under "Allowance for Doubtful Accounts" it discloses:
"Subsequent to December 31, 2015, we became aware of the deteriorating financial condition of one of our wholesale customers, The Sports Authority. ... As of December 31, 2015, the amount of this receivable totaled $32.5 million."
That is the whole method. The divergence told you where to look, the allowance ratio told you management had not marked it down, and the concentration disclosure told you the name. None of that is an accusation. Together it is a specific question with a specific customer attached.
A rule that never returns "nothing to see" is not a rule. Receivables growing faster than revenue is expected in at least three situations, and the pattern is benign in all of them:
Palantir (PLTR) shows the second one cleanly. Receivables rose from $364.8m at the end of 2023 to $1,042.1m at the end of 2025, growth of 57.6% then 81.2% against revenue growth of 28.8% then 56.2%. Two consecutive years past the threshold. Full-year DSO goes from 59.8 days to 85.0.
Now redo it on fourth-quarter revenue, which is $608.4m for 2023 and $1,406.8m for 2025, each derived by subtracting nine-month revenue from the full year. DSO goes from 54.6 days to 67.4. Half of the apparent deterioration was the shape of the growth curve, not the collection cycle. The same 10-K states that terms "generally require payment within 30 to 60 days from the invoice date", that the allowance for credit losses "was immaterial", and that one customer represented 25% of total receivables at year end.
Take that last one in both directions. A quarter of the balance sitting with one counterparty is an innocent explanation for a moving ratio, and it is also what makes the balance sensitive to one decision by one customer. The check tells you what to ask. It does not answer for you.
The divergence test is narrow on purpose. Its limits are worth stating plainly.
There is no universal number, and any article that gives one is describing an industry rather than a rule. Grocers run near zero, engineering and defence contractors run past 90 days, and both are normal. Judge the company against its own three-year median, not against a benchmark.
Two consecutive periods past a threshold you set in advance. One period is almost always timing, seasonality or a single slow payer. The reason two matters is that timing effects reverse at the next balance sheet date and structural changes do not.
Usually, as a growing negative in the change-in-receivables line of the operating section, which is the fastest place to spot it. It will not appear there if the company sold the receivables, and an offsetting swing in payables or inventory can mask it, so the balance sheet comparison is the more reliable read.
No. Collections improve when a company starts factoring receivables, offers early-payment discounts that cost it margin, or shifts toward smaller customers who pay faster and buy less. A ratio improving for a reason you have not identified is not yet good news.
Corva computes the receivables and revenue growth series from the filed statements, tracks the allowance ratio alongside it, and reads the concentration note so the question comes with the customer's name attached. Figures are computed from the filings and cross-checked against SEC EDGAR. Where a number cannot be found, it says so rather than inventing one.
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Related: the four causes of a falling gross margin, and how to read a 10-K in 30 minutes.
Corva is a research tool, not a broker or investment adviser, and nothing here is a recommendation to buy, sell or hold any security. Under Armour and Palantir are used here to illustrate a calculation, and nothing above asserts that either company's accounting was or is improper. The Under Armour figures come from the company's Forms 10-K for the years ended 31 December 2015, 2016 and 2017; the SEC matter described was settled without any admission or denial of the findings. The Palantir figures come from the Form 10-K for the year ended 31 December 2025 and from the quarterly revenue reported in its Forms 10-Q. Growth rates, gaps and DSO are computed from those figures. Verify anything you intend to act on against the primary filing. See terms and disclaimer.