Larry, I haven't had a chance to look at Dell's DSO's in detail, but there are really only a few legitimate reasons for studying them, and trying to guess what the earnings will be for the next quarter is not one of them. Nor is discerning aggressive pricing (which is better monitored by watching margins). It is useful in determining if channels are being stuffed, but since Dell doesn't use intermediate channels it is useless for that purpose.
It is well known that doing business in other countries requires a relaxation of payment terms, and this would affect DSOs, but considering the growth characteristics this quarter, I believe that was a negligible factor. It's impossible to say why they increased, but I believe that there was a spurt of buying late in the quarter that had nothing to do with relaxation of terms. I cannot support this belief with evidence.
Realistically, there are only two reasons to watch DSO:
1. To discern the quality of the receivable (i.e., the likelihood of payment); and
2. To make sure that the cash generating engine is sufficiently robust to fund growth internally (i.e., to make sure that future cash flow will remain positive).
Bear in mind that the big problem with DSO is you are dividing a stock (accounts receivable) by a flow (sales). A flow has an implicit denominator (time), which makes all ratios of this sort difficult to interpret.
TTFN,
CTC |
