OCR Text |
Show . i in- - nm I. axe rilrune. .Sunday. October 17. 19X2 Dan Dorfinan Declining Corporate Liquidity Belies Investor Optimism Dorfman By Dan billion. Kodak Nu doubt about the market muscle of the Dow; its 30 percent rise in a little over two months is enough to take an inve- stor's United Technologies only has 4.7 cents on hand againsi each dollar of short-terliabilities. short-terdebt; however, its cash and cash equivalents had shrunk to According to the Money Forecasts analysis, the Dow component companies, at the end of '76, had an average 34 cents on hand to cover each dollar of short-terdebt. By mid-82- , the figure was nearly cut in half to 19 cents. These figures, though, factor in the liquidity of which has since been removed as a Dow component. $477 million. breath Clearly, Kodak is nut in any financial hot water, but equally clear is that its financial manhas been euverability. short-terimpeded. IBMs shares jumped over 20 points during the rally. Its shortterm liquidity, though, has gone just the other way. At the end of last year, it had 27.7 cents against each dollar of short-terdebt; the latest figure shows a hefty drop of nearly 34 percent to 18 cents. Considering that IBM had over $1.50 on hand at the end of '76 to cover every dollar of short-terobligation, its obvious that the company is not nearly as cash-ricas a lot of folks think. Liquidity Criteria '82 period In the same first-hal- f using the same liquidity criteria big declines in debt coverage have also taken place in American Can (from 20.6 cents to 11.2 cents); Bethlehem Steel (25.8 to 13.4 cents); Inco (6.0 to 2.7 cents); Owens Illinois (54.6 to 33.2); Procter & Gamble (39.1 to 30.2); U.S. Steel (50.4 to 19.9), and Allied Corp. (13.2 to 6.7). On the other hand, International Papers liquidity ballooned in first half of the year from about 65 cents (against each buck of short-terdebt) to $1.30; this largely reflected the sale of some oil properties. Standard Oil of California and General Foods were solid gainers, and even troubled International Harvester showed some progress, due in large measure to sale of property and a general inability to increase borrowings. Interestingly, Woolworth's shortterm liquidity fell to an abysmally low 1.1 cents (for each dollar of debt) from 1.7 cents at the end of last year. Gant Retailer Forecasts Money publisher Martin Weiss believes this liquidity squeeze led the giant retailer to take decisive action to get its financial house in order namely, the sale of its British subsidiary and the closing of its Woolco discount stores. American Brands also has a puny just a penny to liquidity ratio cover each dollar of short-terdebt. Accordingly, its Weiss belief that American Brands may well go the Wool worth route to beef up its balance sheet. away. But if you look at the balance-shee- t muscle of the Dow's 30 component companies specifically the critical amount of cash and cash equi- valents on hand to cover each dollar of .hort-terliability or debt (to be paid off in a year or less) the picture is far different and not very pretty. The financial flab is conspicuousand growing amid ly abundant sharply declining corporate liquidity. In brief, the figures suggest that corporate America lacks the necessary muscle to finance a sustained and meaingful economic recovery that its weakening financial base must be strengthened before it can actively commit itself to new expansion (probably the hiring of additional workers and the purchase of new plant and equipment.) Surge Suspect? If you buy this view, then much of the recent market surge reflecting the sharp decline in interest rates may well be suspect because the expectation of an imminent and gradual economic rebound is what the rally was all about. The latest mortality figures clearly attest to the weakening corporate financials. Up through early October, a total of 19,170 This figcompanies went belly-uure. which compares failures in the same '81 ppriod, represents about a 47 percent increase in the bankruptcy rate, and, more importantly, is the highest since the economic turmoil of the early 30s. Significantly, the worst deterioration has taken place among the biggest winners in the recent market rally (such as Kodak and IBM). At the end of '81, for example, Kodak whose stock shot up over 25 points during the market explosion had nearly 53 cents on hand to cover each dollar of short-terdebt. The latest figures show only 22 cents on hand to cover each buck. At the end of '76, the number was 65 cents. Johns-Manvill- with American Replacing press, the '76 number changes to 40 number to just cents; the mid-'8under 26 '4 cnets. Distorts Rtio Weiss figures that the inclusion of the American Express numbers distorts the liquidity ratio somewhat because it's largely a financial organization with much more cash on hand than the typical manufacturing company. But in any event, he says, the trend is clearly down. Since the Dow contains many of the best and strongest companies in the country, it's obvious that the deterioration in short-terliquidity is much more pronounced in the rest of corporate America. Money Forecasts supports this w ith numbers. Weiss points out that the average large manufacturer with a billion dollars or more in assets presently has an average 12 cents on hand to cover each dollar of short-terdebt; that's down about a third from 18 to 19 cents in '76. Weiss contends that the pressures of short-terdebt, and, in some cases, the very threat of potential bankruptcy, will surely force many corporations to reliquefy before expanding. And thus hes convinced that any economic recovery must start a lot later than people think. Consumer Debt Factored into this view, it should be noted, is Weiss contention that the consumer, afflicted with massive debt (over $1.5 trillion at last count) and fearful about the booming rate of unemployment, will not offset to any appreciable degree the slack in capital outlays. Granted, the recent bond market rally has led to a slew of new offerings to help reduce short-terdebt. And one bond trader remarks that it looks like we're getting a new one every 15 minutes. Weiss, however, contends that any continuation of this would surely drive rates back up again. And past patterns at the bottom of recessions show that only a select dollars-and-cent- Interestingly, NEW YORK (API The following list shows the New York Stock and American Ex- 7 8 9 10 change stocks and warrants that have gone up and down the most in the past week beased on percent of change regardless of volume. Weiss calculates that corporate America would have to raise between $200 billion and $250 billion to restore liquidity to reasonable We want to 3 4 ... We analyze your computer needs, present and future. We then match the best computer equipment and software to your needs. We ll find the best doal on our recommended solution, and assist in financing arrangements. All without talking mystical computer language. For a price that can save you money, and buy you peace of mind. Put our exDerience and exoertise to work for vou. YOUR LAUNDRY ROOM 9 CHIN METER APARTMENT WE DONT SELL COMPUTERS, WE SELL SOLUTIONS. WASHER SERVICE Wt UI. 321 W. 3560 So. SIX. Who's to say the Fed can't continue to ease cl edit ? ' If they do," responds Weiss, "you'll revive inflationary fears, sabotage the bond market rally and stocks will get killed." UL SunWood Data Systems 364-955- 9 do, k.iy SPEED QUEEN the Independent tor Dtptndtbilify company non-comput- 32 EXCHANGE PLACE - S.L.C. Ammivemswy ?!Soupon SaS'-'X- e x-.- Help Us celebrate Computerland's 4th Anniversary in the downtown Salt from instruction !ook.s and Like City store. Save 5'i on anything in the store sollware to complete systems for your home or business. And while youre in the store, check out special values like the Apple II package priced at $1905. or the Osborne system 'complete with $2200 worth of free softwarei priced at $1795 Come into Salt Lake City 's oldest and best lull sen lire computer store today! ffiipu&eirlLaflcJ East 2nd South Salt Lake City 161 6602 364-441- 6 South State Murray 266-560- 0 Coupon govjd at Downtown and Murrav lix'utions onlv. Peopolnd IFV Cp pH IFV Core Geerhlrtd New Yore Losers Name StoraeTech BrockHtl n IngredTec NafCnvSir 2 'T slit! believe people buy stocks but that for earnings growth growth has to be limited for now with corporate debt as bad as it is, he says. RENT 2 y levels BUY A COMPUTER. J DONT BUY A SOLUTION. APARTMENT CONDO MOTEL OWNERS w; vv u CV.00 un tii - acquisition-hungr- few get money because the demand is so huge, he observes. Ex- J-- h Specific Figures s If you look at specific figures, you find that Kodak at the end of last year had $1.1 woji rr an At the end of last June, still had $2.1 billion of -- 104 8 - 19: 14 1i H Off 14 0 OH 13.5 ?ff 13 - American Losers S'otfc Evcftans Thinking small systems... Think IBM Name 2 3 4 5 UnitDnl n GEO Inti KenaiCp iTVCp AA Varto 6 GtoOMar The typical gemstone is marked up five times between the mine and vour hands: GEMSTONE INTERNATIONAL brings you sapphires, rubies at a fraction of retail. I'n. mu ,ii id u. 'ij !J 1 id , Sri i i iv. tv'i'.i:. L.iJi '(.'lie i' .kumpjnied IV j ert ilk .tie tri'in ,i regi'tered m. kiii'ii voure 'gem Hi 'Ivgi't, .uiihentk mere li.indne. getting I ill tv 'her r 'is J.i oi . J thrvugh i, i 'ii v.m Kr. geiii't.'iie' Link,) n'tn; ptix n it' tv gv io. 'ii' dirw t in mi t w mine. 1 hi t. 'i v'li tin; '.m hi.tidtivk vt viv . vIhmiii-vu;r '.ipi'luM. '!"i,d .inn unit' mi ,i!v'..trijr;tv'. ; l.l'lf' ,IIlJ .It i", -- iv ; v J ! mu-'ipiil.t- r U v ' This 'U'lk. U'ul! tight liviv tvi:i;t t ii I: it ic !'. it IU .i!t ;ti 1, it illl'v'ptvrLike C Jit tii.ii -1 'Hit-- : n J mg! 'glix JS'll'ill'J J'll'lU'U' .lllj J'll'llvM' t ti'viuiiiivl .iiij i;nmvu.i:itii It i Hi' 'tiered it iv hide on ii't ii i ,g .i , iv iv v t iv 'i i i '! H-- -- i it .i t: ,k tivn i ret. i;i. (. ieiti'tv iv Intern. itiv n. t! n .m Ainerk.in-h.i'e'inj'.iiiv .itid ,i member nt the Silt h ike I m (. i:r, her immeree. ! - : J i . I U ,v i , in-'- i vu.irt;. ,ivjii.iir..ii iiir'. g.itnet", "tv 'ii'. tv hi! in. ih: ion 'i me!' ,n ,d Marriott Hotel October IS 2 3 Business hours: Mondu, Tuesday, 3 to 9 Wed nesdav Saturday, V to 9 Salt Lake City iieeyfcive pen Mouse General and Office Systems 4 October 18, 9 A.M. to Typewriter P.M. Display WP Atlrtched To A Host System D'splaywnlc' The Now Senes III. Model tX) Copier Interactive Business Graphics lor Executives The Displaywnler. Datamaster and 5200 Products You Aie The Operator" Dicpl.iywntor WP Computer Show Snows begin al9 30am. 10 30am, I 30 p m , 2 30 p m 3 TO p m The Systom78 Systom34, Color Terminal Products Tim IBM Per sonal Computer And Senes Products 1 A Dramatization of How a Business Professional Uses Today a Technolooy Presentations begin at 9:30 a m. and 1 :30 p.m. A Dramatization Of How A Office Worker Uses Today's OP and WP Produi '$ Presentations begin at :00 a m. end 3 00 p m 1 1 IBM Corporation 2nd Floor 420 E. South Temple Street Salt Lake City, Utah . .U - fA f i h re |