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Technology Stocks : Network Associates (NET)
NET 197.20-1.4%3:59 PM EST
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To: TraderGreg who wrote (5220)4/30/1999 1:23:00 PM
From: Chuzzlewit  Read Replies (1) of 6021
 
Trader, I'm not sure where the 140 day's inventory figure came from. We are really talking about DSO (day's sales outstanding). I believe Edwarda said that it was from the CC. But to answer your questions:

1. Inventory in the channel is a drag on capital, especially in technology where inventory can become obsolete very quickly. There is no SEC mandate on this issue. It is simple prudence to reduce inventory. I can't tell how much inventory is sitting in the channel. All we can do is gauge how big the receivables are, not how much has sold through to end users.

2. A sale is recognized when inventory is in the hands of a customer. So if a company provides a reseller with goods it is considered a sale, and an account receivable is recognized. As the reseller takes more and more inventory, the A/R continues to rise. DSO is the measure of how many days sales are as yet uncollected.

Inventory within a company's control is not considered a sale. Selling lots of inventory to resellers is a way to pump up sales, but if the reseller doesn't pay because of agreements with resellers sales are inflated but cash flow is not impacted by these "sales". That's why it is a good idea to watch cash flow.

TTFN,
CTC
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