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I just ran the RM numbers for MDT using their latest 10-q. After comfortably passing the first four criteria i calculated a flow of 3.25. can anybody explain to me how this metric could be so bad with the other numbers being so good. Also does this business model handle such a high flow? Or should this stock be avoided because of the flow?

thanx,
JCARTY
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You got it right. Flowie = 3.25.

These numbers (in millions) are taken from MDT's 10-Q filed on 9/8/2000:
Current assets:
Cash and cash equivalents $ 575.2 $ 448.4
Short-term investments 238.2 109.7
Accounts receivable, less allowance for
doubtful accounts of $31.3 and $30.2 1,154.5
1,210.1
Inventories 751.4 690.6
Deferred tax assets, net 160.8 160.5
Prepaid expenses and other current assets 244.7 394.1
--------- ---------
Total current assets 3,124.8 3,013.4

Current liabilities:
Short-term borrowings $ 252.9 $ 316.3
Accounts payable 180.3 200.0
Accrued expenses 530.9 475.2
--------- ---------
Total current liabilities 964.1 991.5

Thus, the flow ratio = (3124.8-(575.2+238.2))/(964.1-252.9) = 3.25.

By looking at the current assets section of the Balance Sheet you can see that the 2 main culprits are Accounts Receivable & Inventory (bolded above). In the case of the RM criteria, we like to see these numbers as low as possible.

In this particular case, MDT's suppliers owe it over $1 billion, and MDT has $0.75 billion of inventory waiting to be sold. That's an aweful lot of money that could be put to better use.

Hope that helps.

Jim
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