One of the most important parts of the stock selection process is analyzing a company’s financial health. This requires potential investors to study company financial statements to get a feel for the company’s trends in profitability, liquidity, and other areas before diving into an investment.
The stocks we list below have market caps above $300 million and 3 troubling indicators:
- Accounts Receivable Flag -receivables increasing relative to revenue growth
- Inventory Turnover Flag – inventory increasing as a percentage of assets
- Falling Current Ratio – assets are declining relative to liabilities
Here’s more information on these screens:
Accounts Receivable
One area that can present trouble is accounts receivable, which is the portion of revenue (sales) that has not yet been received. Since there is no guarantee that this money will be recovered, the higher the portion of revenue attributable to accounts receivable, the lower the quality of revenue.
Receivables also affect liquidity – if a company sees accounts receivable become a larger portion of current assets, it is also considered a troubling sign.
Inventory
Changes in inventory can be due to many factors, but one potentially troubling sign is when inventory is increasing faster than revenue. This may indicate that the company is having trouble selling its inventory.
Inventory, just like receivables, affects liquidity – if a company sees inventory become a larger portion of current assets, it is a troubling sign.
Current Ratio= (Current Assets)/(Current Liabilities)
The higher the current ratio is, the easier it is for a company to pay off debt. Conversely, the lower the ratio, the more difficult it is to cover. It also implies that the company has less cash, or other assets with high liquidity. This flows with the above theme of having an increased inventory.
A current ratio above one is an indicator for a healthy firm. When the ratio is rising it’s considered bullish because the company is gaining more assets, or decreasing their liabilities (paying off loans, ect). Naturally, the reverse suggests the opposite. Below are firms with current ratios below 1.
Business Section: Investing Ideas
Here is the result of our screen. Do you think these stocks will rebound?
Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:
1. AeroVironment, Inc. (AVAV, Earnings, Analysts, Financials): Designs, develops, produces, and supports unmanned aircraft systems (UAS), and efficient energy systems for various industries and governmental agencies. Market cap at $518.65M, most recent closing price at $23.31. Current Ratios decreased from 5.73 to 5.57 during the first time interval (12 months ending 2010-04-30 vs. 12 months ending 2009-04-30). For the second time interval, Current Ratios decreased from 5.57 to 4.87 (12 months ending 2011-04-30 vs. 12 months ending 2010-04-30). And for the final time interval, Current Ratios decreased from 4.87 to 4.42 (12 months ending 2012-04-30 vs. 12 months ending 2011-04-30). Revenue grew by 4.35% during the most recent quarter ($110.67M vs. $106.06M y/y). Accounts receivable grew by 25.79% during the same time period ($83.45M vs. $66.34M y/y). Receivables, as a percentage of current assets, increased from 21.93% to 29.62% during the most recent quarter (comparing 3 months ending 2012-04-30 to 3 months ending 2011-04-30). Revenue grew by 4.35% during the most recent quarter ($110.67M vs. $106.06M y/y). Inventory grew by 14.16% during the same time period ($43.54M vs. $38.14M y/y). Inventory, as a percentage of current assets, increased from 12.61% to 15.45% during the most recent quarter (comparing 3 months ending 2012-04-30 to 3 months ending 2011-04-30).
2. Electronics for Imaging, Inc. (EFII, Earnings, Analysts, Financials): Provides color digital print controllers, format printers and inks, and print management solutions worldwide. Market cap at $713.62M, most recent closing price at $15.34. Current Ratios decreased from 3.51 to 3.42 during the first time interval (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). For the second time interval, Current Ratios decreased from 3.42 to 3.2 (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). And for the final time interval, Current Ratios decreased from 3.2 to 2.86 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). Revenue grew by 16.11% during the most recent quarter ($163.9M vs. $141.16M y/y). Accounts receivable grew by 42.22% during the same time period ($124.5M vs. $87.54M y/y). Receivables, as a percentage of current assets, increased from 21.93% to 30.57% during the most recent quarter (comparing 3 months ending 2012-06-30 to 3 months ending 2011-06-30). Revenue grew by 16.11% during the most recent quarter ($163.9M vs. $141.16M y/y). Inventory grew by 31.16% during the same time period ($61.2M vs. $46.66M y/y). Inventory, as a percentage of current assets, increased from 11.69% to 15.03% during the most recent quarter (comparing 3 months ending 2012-06-30 to 3 months ending 2011-06-30).
3. LDK Solar Co., Ltd. (LDK, Earnings, Analysts, Financials): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Market cap at $185.59M, most recent closing price at $1.39. Current Ratios decreased from 0.82 to 0.62 during the first time interval (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). For the second time interval, Current Ratios decreased from 0.62 to 0.55 (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). And for the final time interval, Current Ratios decreased from 0.55 to 0.53 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). Revenue grew by -73.89% during the most recent quarter ($200.1M vs. $766.34M y/y). Accounts receivable grew by 7.27% during the same time period ($485.32M vs. $452.44M y/y). Receivables, as a percentage of current assets, increased from 17.65% to 22.78% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31). Revenue grew by -73.89% during the most recent quarter ($200.1M vs. $766.34M y/y). Inventory grew by -9.38% during the same time period ($555.29M vs. $612.78M y/y). Inventory, as a percentage of current assets, increased from 23.9% to 26.07% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31).
4. Lattice Semiconductor Corporation (LSCC, Earnings, Analysts, Financials): Designs, develops, manufactures, and markets programmable logic products and related software. Market cap at $449.45M, most recent closing price at $3.83. Current Ratios decreased from 7.21 to 6.41 during the first time interval (52 weeks ending 2010-01-02 vs. 53 weeks ending 2009-01-03). For the second time interval, Current Ratios decreased from 6.41 to 5.99 (52 weeks ending 2011-01-01 vs. 52 weeks ending 2010-01-02). And for the final time interval, Current Ratios decreased from 5.99 to 5.78 (52 weeks ending 2011-12-31 vs. 52 weeks ending 2011-01-01). Revenue grew by -15.59% during the most recent quarter ($70.79M vs. $83.86M y/y). Accounts receivable grew by 7.11% during the same time period ($60.38M vs. $56.37M y/y). Receivables, as a percentage of current assets, increased from 16.23% to 20.26% during the most recent quarter (comparing 13 weeks ending 2012-06-30 to 13 weeks ending 2011-07-02). Revenue grew by -15.59% during the most recent quarter ($70.79M vs. $83.86M y/y). Inventory grew by 5.85% during the same time period ($37.12M vs. $35.07M y/y). Inventory, as a percentage of current assets, increased from 10.09% to 12.46% during the most recent quarter (comparing 13 weeks ending 2012-06-30 to 13 weeks ending 2011-07-02).
5. U.S. Auto Parts Network, Inc. (PRTS, Earnings, Analysts, Financials): Operates as a distributor of aftermarket auto parts and accessories in the United States. Market cap at $114.32M, most recent closing price at $3.73. Current Ratios decreased from 3.79 to 2.92 during the first time interval (52 weeks ending 2010-01-02 vs. 12 months ending 2008-12-31). For the second time interval, Current Ratios decreased from 2.92 to 1.33 (52 weeks ending 2011-01-01 vs. 52 weeks ending 2010-01-02). And for the final time interval, Current Ratios decreased from 1.33 to 1.13 (52 weeks ending 2011-12-31 vs. 52 weeks ending 2011-01-01). Revenue grew by 0.53% during the most recent quarter ($87.44M vs. $86.98M y/y). Accounts receivable grew by 10.72% during the same time period ($9.19M vs. $8.3M y/y). Receivables, as a percentage of current assets, increased from 10.78% to 13.14% during the most recent quarter (comparing 13 weeks ending 2012-03-31 to 13 weeks ending 2011-04-02). Revenue grew by 0.53% during the most recent quarter ($87.44M vs. $86.98M y/y). Inventory grew by 8.04% during the same time period ($46.11M vs. $42.68M y/y). Inventory, as a percentage of current assets, increased from 55.44% to 65.93% during the most recent quarter (comparing 13 weeks ending 2012-03-31 to 13 weeks ending 2011-04-02).
6. ShoreTel, Inc. (SHOR, Earnings, Analysts, Financials): Provides Internet protocol (IP) telecommunications systems for enterprises in the United States. Market cap at $251.17M, most recent closing price at $4.35. Current Ratios decreased from 4.76 to 4.44 during the first time interval (12 months ending 2009-06-30 vs. 12 months ending 2008-06-30). For the second time interval, Current Ratios decreased from 4.44 to 3.47 (12 months ending 2010-06-30 vs. 12 months ending 2009-06-30). And for the final time interval, Current Ratios decreased from 3.47 to 3.1 (12 months ending 2011-06-30 vs. 12 months ending 2010-06-30). Revenue grew by 9.15% during the most recent quarter ($56.3M vs. $51.58M y/y). Accounts receivable grew by 20.94% during the same time period ($32.75M vs. $27.08M y/y). Receivables, as a percentage of current assets, increased from 18.02% to 26.62% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31). Revenue grew by 9.15% during the most recent quarter ($56.3M vs. $51.58M y/y). Inventory grew by 37.81% during the same time period ($23.18M vs. $16.82M y/y). Inventory, as a percentage of current assets, increased from 11.19% to 18.84% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31).
Written by Rebecca Lipman. Accounting data sourced from Yahoo! Finance. All other data sourced from Yahoo! Finance.
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Analyze These Ideas: Getting Started
Dig Deeper: Access Company Snapshots, Charts, Filings
- AeroVironment, Inc. (AVAV, Chart, Download SEC Filings)
- Electronics for Imaging, Inc. (EFII, Chart, Download SEC Filings)
- LDK Solar Co., Ltd. (LDK, Chart, Download SEC Filings)
- Lattice Semiconductor Corporation (LSCC, Chart, Download SEC Filings)
- U.S. Auto Parts Network, Inc. (PRTS, Chart, Download SEC Filings)
- ShoreTel, Inc. (SHOR, Chart, Download SEC Filings)
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