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Strategies & Market Trends : Bankruptcy Predictor Model -- Ignore unavailable to you. Want to Upgrade?

To: Paul Berliner who wrote (35)	3/15/1999 4:02:00 PM
From: Razorbak	Read Replies (1) \| Respond to of 477

Working Capital Ratio <<The working capital ratio is meaningless because it includes inventory, which a company on the verge of bankruptcy is likely to be having trouble managing - the better ratio is the 'quick ratio.'>> Paul: Companies that are having trouble paying their vendors often do not have very high inventories, because this takes either cash to pay for manufacturing payroll and direct materials purchases or trade credit, which may be very limited due to prior payment problems. Plus at the end of the day, if cash gets tight, inventories can be partially or fully liquidated to produce cash, albeit usually at a discount. Hence the working capital ratio may still be meaningful, even though it may not be quite as telling as the quick ratio at a given snapshot in time. Nevertheless, I think it is erroneous to argue that the working capital ratio is meaningless. Razor