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Relating A Company Statistics To Its Operation



by Adam Heist

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There is a lot of material out on the information highway on what companies are doing. First let's look at how fast a company that you are trying to sell to is turning over its inventory. The most accurate way to find the answer for inventory turns is to add the inventory values from the last four quarters, divide by four, and use this as your inventory number. You would then divide the inventory into the COGS, the Cost of Goods Sold. The result gives you an idea of how much inventory passed through versus the cost of the goods. Look at the asset structure, net working capital, long term debt, goodwill and intangible assets and the company's leverage factor.

The asset structure tells us what assets the business needs - or is using - to operate. Working capital is the "grease that keeps the wheels of the organization turning." Long-term debt will show us how the company is utilizing long-term debt to finance its objectives, and give us an idea about the risk profile of the company. An industry that requires heavy investment in fixed assets to generate sales will have a greater need for long-term debt. The amount of goodwill and intangible assets will show what growth strategies the company is following. If the goodwill account does not show much growth year over, and the company is growing sales, then we can draw some conclusions that the company is meeting its internal growth quotas, or it is acquiring companies that are valuable. The leverage factor is another way to check financial risk. This tells you how much of the company is owned by the shareholders versus the creditors. Too much long-term debt can be dangerous, while too little may indicate that little or any investment is going on in the company. In today's acquisition happy world, some large companies are too busy accumulating trophies and companies, to invest in their production.

Always make note of revenue per employee; gross margin; and asset turn over. If you know these, you can then quickly compare your prospects efficiency to their competitors, and draw conclusions as to industry metrics. You can use this knowledge with private companies, or as a line of questioning on a sales call. The more you know about the companies that you sell to, the more chance you have of making the sale


Information About The Author

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