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Chapter 9. Goosing, Stuffing, and Faking... > Red Flag 5: When a Company Is Taking...

Red Flag 5: When a Company Is Taking Longer to Convert Sales into Cash

It is all very well to have strong sales growth, but when a company is taking longer than usual to convert those sales into cash, it can be a sign of trouble ahead. For example, in 1999, telecom equipment maker Lucent Technologies needed about 40 percent longer to convert an average sale into cash than in 1997—93 days versus 68 days. Both inventories and receivables were climbing faster than sales at the time. Lucent struggled from the end of 1999 as cutbacks in telephone company spending forced it to slash jobs and money-losing production, post billions of dollars in losses, and watch as its market value collapsed.


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