Earning can be telling for a company, but it doesn’t tell all! There is much more to a company than their earnings, not to mention they can be misleading if this is what you use for all your analysis. Let’s dig deeper and see why Progress’ earnings aren’t so sharp. Seth Jayson has compiled all the important details.
Let’s break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We’ll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.
To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Progress Energy for the trailing 12 months is 56.0.
For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that’s taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress — one most investors are likely to miss.
Its always important to do more than scratch the surface of the stock when doing your research. There is more to a stock than earnings. Remember this! It will pay off!
Quotes taken from report by Seth Jayson, Read the entire article here.
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