Are Ethan Allen Interiors' Earnings Better Than They Look?

Are Ethan Allen Interiors' Earnings Better Than They Look? When judging a company's prospects, how rapidly 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. 0 days, it is 11. That was partially offset by a 2. To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. 9 days, it is little changed from the average of the past eight quarters. For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. 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 clients (who might be demanding more generous terms). In this series, we measure how swiftly a company turns cash into goods or services and back into cash. 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 CCC figure for Ethan Allen Interiors for the trailing 12 months is 132. 1 days better than the five-year average of 143. 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. Because of the seasonality in some businesses, the CCC for the TTM period might not be strictly comparable to the fiscal-year periods shown in the chart. To get an understanding of the usual ebb and flow at Ethan Allen Interiors, consult the quarterly-period chart below. With quarterly CCC doing worse than average and the latest 12-month CCC coming in better, Ethan Allen Interiors gets a mixed review in this cash-conversion checkup. Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. 4 days compared to the five-year average. 2-day increase in DSO. Considering the numbers on a quarterly basis, the CCC trend at Ethan Allen Interiors looks OK. In this series, I'm most interested in comparing a company's CCC to its prior performance. This can sometimes be an important signal of future distress -- one most investors are likely to miss. On a 12-month basis, the trend at Ethan Allen Interiors looks good. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. The biggest contributor to that improvement was DIO, which improved 13. Are Ethan Allen Interiors' Earnings Better Than They Look? Trade News selected by Local Linkup on 25/04/2012