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Strategies & Market Trends : The Rational Analyst -- Ignore unavailable to you. Want to Upgrade?

To: Scott H. Davis who wrote (1598)	6/13/1999 12:20:00 AM
From: HeyRainier	Read Replies (2) \| Respond to of 1720

[ Equinox Systems: EQNX ] Scott, With the opportunity to increase my focus on more individual issues, I took the opportunity to examine Equinox's most recent 10-K, filed on 3/29/99. These developments are worth noting because they are indicative of future declines in earnings: 1. Sales from fiscal 1997 to 1998 increased 10.4%, while Accounts Receivable jumped 39.2% and Inventory surged 66.6%. Whenever an imbalance occurs among sales, A/R, and Inventory, you should take a closer look because of the greater potential for cash shortages and earnings disappointments. Increases in A/R (while sales lag considerably) could signal difficulty in collecting one's receivables, and if they get too stale, may cause the company to increase their "Allowance for Uncollectible Accounts," an action that would trigger an added expense against income and cause a shortfall in earnings. Inventories: they may be bulking up for the Post Office project (if it already isn't underway), but you've got to wonder just how much of that bulk is from the company's regular product line. Does the bulge in inventories reflect obsolete products that will eventually need to be written off against earnings? Also, it is disconcerting to note that while Net Income rose, Cash Flows from Operations diverged, declining from $6.44 million to $2.07 million. These two items generally should move in the same direction. When they don't, pay closer attention. Arguably, the quality of Equinox's earnings is now in greater question with the above findings. Rainier