Looking for a list of mega-cap tech stocks that could be in trouble? For ideas we crunched the numbers, and identified a list of companies that have seen their inventories grow significantly faster than revenues during the most recent quarter.
To help you understand why bloated inventories are a potentially damaging development, we'll explain each term clearly. The complete list follows below.
Any property or holding that has tangible value is listed on the company's balance sheet as an asset. This can include cash, product inventory, accounts receivable, land, equipment, investments, and more.
There is no right or wrong proportion of current (short-term, liquid) assets and long-term assets. However, dwindling cash and current asset levels should be a concern -- it may be a sign of growing illiquidity, which can hamper or even paralyze a company.
"The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale," explains Investopedia.
Furthermore, inventory represents one of the most important assets that most businesses possess, because the turnover (i.e., sales) of inventory represents one of the primary sources of revenue for a company.
In cases where inventories are growing faster than revenues, a flag is raised. In general, the relationship between revenues and inventory should remain constant, but if revenue grows significantly faster than inventories it may be a signal that the company is struggling to sell its inventory fast enough (i.e., a lower than expected demand for its products)
A word of caution: Rising inventories isn't always a bad thing. In many cases, a company may boost inventory in anticipation of future demand.
Nevertheless, a breakdown in the relationship between revenues and inventory requires close attention.
Now that you're armed with the knowledge, use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. LM Ericsson Telephone
2. Research In Motion Limited
3. Agilent Technologies
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen does not own any of the shares mentioned above. Data sourced from Google Finance.
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