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Technology Stocks : Network Associates (NET)
NET 186.26-2.7%Nov 21 9:30 AM EST
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To: kendall harmon who wrote (4346)3/19/1999 1:40:00 AM
From: Chuzzlewit  Read Replies (2) of 6021
 
Kendall, now this is where some analysts have problems with analysis:
The greater risk in the quarter may be reflected in a marked increase in Days Sales Outstanding (DSOs)...

Ask yourself why this ought to be a concern. It turns out there there are only a few reasons. They are:

1. An increase in DSO may mean that cash flow is slowing. The negative implication of this is that cash which could be used for productive purposes is tied up in a non-producing asset; and/or

2. Customers are not paying their bills on time, and this could signal a problem with a portion of the customer base defaulting; and/or

3. In an attempt to "make its numbers" the company engages in one of two activities: it offers discounts to encourage sales at the end of the quarter (in which case there should be a drop in margins or a substantial increase in SG&A to reflect discount given) and/or the company "stuffs" it channels -- meaning the company convinces its resellers to carry a lot more merchandise than it would normally carry. This practice results in a return of unsold, obsolete merchandise in subsequent quarters.

4. The company is growing rapidly, which inevitably leads to increasing DSO.

I really hate it when analysts simply throw out the "increasing DSO" flag as if it is inevitably and unalterably bad. Good financial analysis requires the examining of trends and various other symptoms before arriving at a diagnosis.

So when Powers neglects to tell us what risk lurks behind the possible increase in DSO it irks me no end.

TTFN,
CTC
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