Richard, you raised two points:
First, you raise the issue of share buy-backs and the ability of a company to manipulate earnings per share by repurchasing its stock. This really comes back to a point I made earlier concerning employee stock options. When a company buys or sells its own stock, those transactions are not accounted for as part of the income statement. Unfortunately, this completely obscures what is happening. It is a bad accounting practice (but fully within the spirit and letter of GAAP), and one that needs to be changed. Why are so few people upset about this?
Second, I think you are off base on the inventory issue. If you recall, a couple of months ago Meredith said he had plans to reduce the days' inventory down to 5. Clearly, he is moving in that direction. Simply looking at an increase in DSO coupled with a decrease in inventory is a poor diagnostic for Dell because of its efficient manufacturing model and lack of intermediate channel. Add two further pieces of information, and you see why. First, sales normally increase in the fourth quarter due to seasonal buying patterns, and October is the first month of the fourth quarter. Second, the reduction in day's inventory amounted to only 1 day. So the greatest "stealing" would be around 1.1% (because there are 91 days in the quarter).
TTFN,
CTC |
