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LilMitch™ x J.StonerBeatz Collab - "Counting Money" [Full-Length] - Video
It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"
When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Western Digital (NYSE: WDC ) .
Let's break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.
Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.
To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Western Digital for the trailing 12 months is 1.1.
For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.
In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.
Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.
Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Western Digital, consult the quarterly-period chart below.
Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.
On a 12-month basis, the trend at Western Digital looks very good. At 1.1 days, it is barely changed from the five-year average of 1.2 days. The biggest contributor to that improvement was DSO, which improved 3.7 days compared to the five-year average. That was partially offset by a 3.1-day increase in DIO.
Considering the numbers on a quarterly basis, the CCC trend at Western Digital looks good. At -15.4 days, it is 14.0 days better than the average of the past eight quarters. With both 12-month and quarterly CCC running better than average, Western Digital gets high marks in this cash-conversion checkup.
Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.
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A Hidden Reason That Western Digital's Earnings Are Outstanding
WASHINGTON (AP) — Are hardbound textbooks going the way of slide rules and typewriters in U.S schools?
Education Secretary Arne Duncan and Federal Communications Commission chairman Julius Genachowski on Wednesday challenged schools and companies to get digital textbooks in students' hands within five years. The Obama administration's push comes two weeks after Apple Inc. announced it would start to sell electronic versions of a few standard high-school books for use on its iPad tablet.
Digital books are viewed as a way to provide interactive learning, potentially save money and get updated material faster to students.
Digital learning environments have been embraced in five states. But many schools lack the broadband capacity or the computers or tablets to adopt the technology, and finding the money to go completely digital is difficult for many schools in tough economic times.
Tied to Wednesday's announcement at a digital town hall was the government's release of a 67-page "playbook" to schools that promotes the use of digital textbooks and offers guidance. The administration hopes that dollars spent on traditional textbooks can instead go toward making digital learning more feasible.
Going digital improves the learning process, and it is being rolled out at a faster pace in other countries such as South Korea, Genachowski said in an interview. Genachowski said he is hopeful it can be cost effective in the long run, especially as the price of digital tablets drops.
"When a student reads a textbook and gets to something they don't know, they are stuck," Genachowski said. "Working with the same material on a digital textbook, when they get to something they don't know, the device can let them explore, it can show them what a word means, how to solve a math problem that they couldn't figure out how to solve."
Students can use the textbooks for video explanations to help with homework, they can interact with molecules, and they can manipulate a digital globe to see stories and data about countries, said Karen Cator, director of the Education Department's office of education technology.
"We're not talking about the print based textbook now being digital. We're talking about a much more robust and interactive and engaging environment to support learning," Cator said.
About $8 billion is spent annually in the U.S. on textbooks for children in kindergarten through 12th grade, said Jay Diskey, the executive director of the school division of the Association of American Publishers. Diskey said textbook companies have been working on the technology for the past five years to eight years to transform the industry, but that in many cases, schools simply aren't ready.
"It's not only the future, it's the now. The industry has embraced this, but the difficulty does lie in the fact that schools are not yet fully equipped with the hardware. We hope that they get there soon," Diskey said.
Continue reading here:
Challenge to US schools: Embrace digital textbooks
The coin toss begins the quest for the best foods along Super Bowl sidelines. It coincides with the serious game between the New England Patriots and the New York Giants on TV.
For our standing Super Bowl date with friends, we eat appetizers as the game starts, dinner at halftime and dessert amid confetti of the Lombardi Trophy presentation.
Chili bars, taco buffets, snacks and sandwiches offer tasty fun to those who do or don't understand touchdowns and punts. Options for pleasing taste buds outnumber fans.
Pre-planning keeps hot chicken wings from costing as much as a ticket into Lucas Oil Stadium in Indianapolis, reports the National Chicken Council. A single chicken's two wings are a small contribution to the 1.25 billion wing portions (100 million pounds) expected to be eaten during the weekend. Thus, restaurants and food service providers began stockpiling them long before the Rams won a game in late October. That keeps the hot appetizer affordable.
The third tip of the wing, called the flapper, is removed for Asian cuisine. The remaining meatier sides become Buffalo wings, traditionally deep-fried minus breading, then coated in sauce based on butter and vinegar-ish hot sauce. Classic companions are celery sticks and blue cheese dressing.
Some fans modify the flavor. Barbecue sauce, grilling and Asian specialties lead the way.
For Athenian Chicken Wings (www.eatchicken.com), marinate 2 pounds of chicken drumettes in a mixture of 1/3 cup olive oil, 1 teaspoon salt, 1/2 teaspoon black pepper, 1/3 cup lemon juice, 2 teaspoons fresh lemon zest and 2 teaspoons oregano for 20 to 30 minutes. On a baking sheet coated with nonstick cooking spray, bake wings in a preheated 350-degree oven for 20 minutes, flip them over and bake 15 minutes longer or until done. For dip, mix 1 cup Greek yogurt, 2 tablespoons honey, 1 teaspoon salt, 1/2 teaspoon pepper and 1/4 cup finely chopped green onion tops.
Don't neglect other chicken parts. For a similar dip, start with ranch or blue cheese dressing. Add a bit of buffalo wing sauce — carefully, as it heats up in a hurry. Chopped, cooked chicken can be added for warm dipping with hearty chips, or ready-to-heat chicken kabobs can be dipped into the mixture. Cream of celery soup adds authentic flavor.
Chicken is a favorite in chili. A recipe from Nielsen-Massey Vanillas uses its chocolate extract for flavor depth without red meat. Tune up or down seasonings and add more beans as desired.
HEARTY WHITE BEAN CHILI
2 tbsp. olive oil
3 boneless skinless chicken breasts, cut in medium dice
1 cup finely diced onion
4 cloves garlic, minced
1 cup chicken stock
1 can (28 oz.) diced tomatoes
1 can (29 oz.) tomato sauce
1 can (7 oz.) diced green chiles
2 tsp. ground cumin
2 tbsp. dried parsley
1 tbsp. dried oregano
1/4 tsp. cayenne pepper
1 tsp. kosher salt
2 tsp. chocolate extract
1 can (15 oz.) white kidney beans, drained
1/2 cup (2 oz.) freshly grated Parmesan cheese
In medium saute pan or skillet, heat olive oil over medium-high heat. Cook chicken 4 to 5 minutes until brown. Using slotted spoon, remove chicken from pan and set aside.
Add onion to pan and cook, stirring occasionally, until lightly browned and caramelized. Add garlic and cook 1 to 2 minutes. Pour in the chicken stock, scraping bottom of pan with wooden spoon to deglaze, loosening food particles from pan.
Pour stock mixture into large saucepan and add chicken, tomatoes, tomato sauce, chiles, cumin, parsley, oregano, cayenne and salt. Cover and simmer, stirring occasionally, 30 minutes. Add chocolate extract and beans. Cook 10 minutes longer.
Garnish individual servings with Parmesan cheese.
Note: Nielsen-Massey recommends seasoning the chili with its "pure" chocolate extract and organic chicken stock, parsley and oregano.
Makes 6 servings.
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HOME PLATE: Tasty Super Bowl foods ready to score on Sunday
The Canadian dollar advanced to a three-month high versus its U.S. counterpart as stronger global manufacturing data boosted speculation the worldwide economy is growing, stoking investor appetite for riskier assets.
Canada’s currency rose beyond parity with the greenback as purchasing-manager indexes from China to the U.S. increased and European Union President Herman Van Rompuy said the bloc has reached a “turning point” in its two-year-old debt crisis. Canadian employers added jobs in January for a second month, economists predicted a report will show Feb 3. Stocks climbed.
“The loonie’s doing a bit better on the general positive outlook,” Michael O’Neill, vice president of foreign-exchange trading at RJOFX Canada, a unit of RJ O’Brien & Associates Inc., said by phone from Toronto. “That’s partly from the China data last night and also in part because Europe hasn’t cratered. There’s also a bit more optimism surrounding the U.S. economy. What good for the U.S. is good for global growth; Canada is along for the ride.”
The currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.4 percent to 99.86 Canadian cents per U.S. dollar at 5 p.m. Toronto time. It touched 99.64 cents, the strongest level since Oct. 31. One Canadian dollar buys $1.0014.
The U.S. dollar fell against all except two of its 16 most- traded peers as investors sought higher-yielding assets.
Biggest Trade Partner
The loonie gained beyond a one-for-one basis with the greenback for a second day as data from the Institute for Supply Management showed manufacturing in the U.S., Canada’s biggest trade partner, expanded at the fastest pace in seven months. The ISM index rose to 54.1, less than projected, from 53.1 in December, the Tempe, Arizona-based group’s report said. Figures greater than 50 signal expansion.
Chinese factory indexes increased as the world’s second- biggest economy withstood weaker exports driven by the European debt crisis and a government-induced property slowdown. In Germany, Europe’s largest economy, output grew for the first time since September.
“The Canadian dollar is being driven by the better-than- expected PMI data,” Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co., said in an e-mail message. “This has resulted in broad U.S. dollar weakness, a strong rally in equities and has boosted growth-sensitive currencies such as the Canadian dollar.”
Bonds Drop
Canadian government bonds fell. Benchmark 10-year notes slid for the first time in six days, lifting their yields higher by two basis points, or 0.02 percentage point, to 1.90 percent. The securities yielded eight basis points more than comparable U.S. Treasuries, versus six basis points at the end of 2011.
Canada sold C$2.5 billion ($2.5 billion) of 10-year debt today, drawing an average yield of 2.015 percent, according to a statement on the Bank of Canada’s website. The 2.75 percent notes are due in June 2022.
The auction attracted C$5.8 billion in bids for a coverage ratio -- the amount bid relative to the amount sold -- of 2.31. The last offering of 10-year bonds, on Oct. 5, drew an average yield of 2.254 percent and a coverage ratio of 2.52.
Employers in Canada added a net 22,000 jobs last month after a revised increase of 21,700 in December, according to the median of 23 forecasts compiled by Bloomberg News before Statistics Canada reports the data on Feb. 3. U.S. payrolls swelled by 145,000 jobs in January, data due the same day in Washington is forecast to show.
Depreciation Forecast
The loonie will depreciate to C$1.03 by the end of the first quarter after weakening 2.3 percent last year, economists in a Bloomberg survey predicted.
“The price action in the Canadian dollar is more a function of external risks, namely the outlook for the euro zone,” Brown Brothers’ McCormick said. “We also expect momentum in the U.S. economy is likely to wane. As a result, we’re a bit more bearish on the Canadian dollar and expect it to finish the quarter at C$1.06.”
RJOFX’s O’Neill predicted the loonie will stay in a range between 99.60 cents and C$1.0050 at least until the payrolls data this week. He recommended buying the greenback against the loonie at 99.60 cents and 99.70 cents, exiting the trade if the U.S. currency weakens to 99.45 cents.
Fibonacci Analysis
O’Neill, citing Fibonacci retracement levels on the range between the July 26 high in the Canadian dollar at 94.07 cents versus the greenback, and its low at C$1.0658 on Oct. 4, said if the currency breaks through the 61.8 percent retracement level at about 98.80, “we should get 100 percent retracement” back to 94.07 cents. That is unlikely to happen unless the euro can appreciate beyond about $1.3250, O’Neill said. It rose 0.6 percent today to $1.3158.
Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low.
Canada’s dollar gained 2.8 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar appreciated 0.4 percent, while the euro weakened 4 percent.
The EU’s Van Rompuy told European lawmakers “substantially” lower yields on Italian and Spanish bonds signal efforts to overcome the debt crisis and preserve the euro are paying off. Greece and private creditors are near an accord on a debt swap that in principle would include a sweetener tied to a revival in economic growth to ease the plan’s impact on bondholders, people with knowledge of the talks said.
The Standard & Poor’s 500 Index rose 0.9 percent in its first advance in five days. Crude oil for March delivery climbed as much as 1.2 percent to $99.49 a barrel in New York before sliding to $97.31. Crude, Canada’s biggest export, reversed gains after a report showed U.S. inventories climbed.
To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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Canadian Dollar Gains to Strongest in Three Months as Risk Appetite Grows