TheMotleyFool uses the financials of Universal Forest Products, Inc. to demonstrate one measuring device that can be used to analyze the future value of an investment: Following trends in AR (accounts receivable) and DSO (number of days worth of sales owed the company). Problems with ARs and DSOs can spell trouble, but can also be an acquisition or taxes paid. The wavy lines on the flow chart for UFP, the Fool speculates, could be the company giving generous collection times to creditors in order to spur sales; perhaps they raced to book sales before the quarter ended. Looks good for the investors. But as for UFP, the signals are not actually clear: It’s year-over-year revenues shrank 2.4 percent, and its AR gained 4.6 percent. The quarter DSO increased 7.2 percent over the same quarter last year, but was down 1.2 percent from the previous quarter. The Fool cautions that differences in business models can alter the charts.
(Graphic credit: S&P Capital IQ)