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 Zebra Technologies (NAS: ZBRA) .
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.
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 Zebra Technologies for the trailing 12 months is 116.5.
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 Zebra Technologies, 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 Zebra Technologies looks less than great. At 116.5 days, it is 7.7 days worse than the five-year average of 108.8 days. The biggest contributor to that degradation was DIO, which worsened 8.7 days when compared to the five-year average.
Considering the numbers on a quarterly basis, the CCC trend at Zebra Technologies looks OK. At 120.7 days, it is little changed from the average of the past eight quarters. 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. With both 12-month and quarterly CCC running worse than average, Zebra Technologies gets low marks in this cash-conversion checkup.
Add Zebra Technologies to My Watchlist.
The article Here's Why Zebra Technologies' Earnings Are Worse Than They Look originally appeared on Fool.com.
Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor ofMotley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.