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Technology Stocks : Dell Technologies Inc.

DELL 129.98

-6.2%

Dec 12 9:30 AM EST

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To: rudedog who wrote (85079)	12/13/1998 11:07:00 AM
From: Chuzzlewit	Read Replies (1) of 176387

Rudy: 20% is an illusion. Remember, because of the slowness of receipts Compaq is factoring a hefty number of its A/Rs. Factors buy A/R at a discount, and last I checked, the cost of factoring was not accounted for as a gross profit item. So, If the factor buys at, say, a 5% discount the effective profit margin drops from 20% to 15%. Given the recurring nature of this activity it might be prudent to consider this as a variable cost. It seems to me that the real issue is why Compaq is struggling to establish a positive cash flow. No business in its right mind factors A/R given any choice, and yet Compaq has been doing this for some time. The cost is just too high, and generally indicative of undercapitalization. TTFN, CTC

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