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Factoring Receivables

What do you think of The Learning Co. (TLC:NYSE) and its
use of factoring receivables? Does it lessen the quality of its

--Matt Brody


"Factoring" your receivables is the corporate equivalent of
selling your spring tax refund at a discount to H&R Block for
instant cash instead of waiting a few weeks for the
government to mail you the check. Generally, only desperate
companies with liquidity issues would willingly let some
high-risk finance company gouge out their eyeballs just to
collect on their bills a few months early.

Ironically, the process has no effect on a firm's EPS figure.
Income generally is recorded on the books at the time a sale
is made, not when the money is collected. That's why it's
important to check the current ratio to see how well a firm
can meet its daily obligations. (See my earlier current ratio

For The Learning Co., the current ratio is under 2 and has
been for several years. In addition, the firm hasn't made a
profit since 1994 and its losses seem to be mounting. At a
price-to-book of 20, I'd say this firm has some fundamental
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