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Good Day. I read the following article and wasn’t quite sure how to interpret what I read.


I don’t fully appreciate all that was discussed but have some questions regarding statements made by the author. In general the point made is that some sources of cash-flow could be signs of trouble and I believe they are pointing to accounts payable, accounts receivable, taxes, stock based compensation, and asset sales.

I can’t speak to the taxes or stock based compensation concerns and would appreciate it if somebody could provide some clarity to what are the concerns.

Accounts Receivable
The author states that decreasing AR can be a concern and then mentions later that the increased AR is something to watch as well. So which is it? I agree that AR has increased, but I also looked at the data and determined the following:

Time to be paid ratio = (Sales) / (Accounts Receivable) = 4069M / 58M = 70.15 (2011)
Weeks to get paid = (52 weeks) / (Time to be paid ratio( = .74.

This is lower than the average for 5 years. So it seems to me the Metro PCS did a better job in 2011 for accounts receivable

Accounts Payable
Using the following formula: (Cost of Sales) / (Inventory) = 622 / 161 = Turn Over Ratio = 3.86 (2012)
Weeks to turn inventory into sales = (52 Weeks)/ (Turn Over Ratio) = 28 weeks.

I agree this is an increase, but why is this a bad thing? Seems they are managing suppliers such that they have about 10 weeks of buffer between when inventory is sold and when they need to pay that inventory.

Again I appreciate others thoughts on this as well as thoughts on the taxes and stock compensation discussion in the article.


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Jared, I don't think there are hard rules on these. But a well managed company should have small steady changes in these numbers. Any abrupt change up or down is a blinking yellow light. Its a signal to look into the situation and find out what is going on.

Accounts payable: "stuffing" where you artificially increase sales and earnings by filling customer warehouses with your unsold product might be indicated by changes in numbers.

Accounts receivable: Better collection of unpaid accounts can boost profits temporarily.
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