You are not currently logged in.
Access JSTOR through your library or other institution:
If You Use a Screen ReaderThis content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Cash Flows, Ratio Analysis and the W.T. Grant Company Bankruptcy
James A. Largay, III and Clyde P. Stickney
Financial Analysts Journal
Vol. 36, No. 4 (Jul. - Aug., 1980), pp. 51-54
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/4478363
Page Count: 4
You can always find the topics here!Topics: Cash flow, Cash, Business structures, Stock prices, Working capital, Net income, Accounts receivable, Ratio analysis, Financial statements, Profitability ratios
Were these topics helpful?See something inaccurate? Let us know!
Select the topics that are inaccurate.
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Preview not available
Although they surfaced as a gusher rather than a trickle, the problems that brought the W.T. Grant Company into bankruptcy and, ultimately, liquidation, did not develop overnight. Whereas traditional ratio analysis of Grant's financial statements would not have revealed the existence of many of the company's problems until 1970 or 1971, careful analysis of the company's cash flows would have revealed impending doom as much as a decade before the collapse. Grant's profitability, turnover and liquidity ratios had trended downward over the 10 years preceding bankruptcy. But the most striking characteristic of the company during that decade was that it generated no cash internally. Although working capital provided by operations remained fairly stable through 1973, this figure (which constitutes net income plus depreciation and is frequently referred to in the financial press as "cash flow") can be a very poor indicator of a company's ability to generate cash. Through 1973, the W.T. Grant Company's operations were a net user, rather than provider, of cash. Grant's continuing inability to generate cash from operations should have provided investors with an early signal of problems. Yet, as recently as 1973, Grant stock was selling at nearly 20 times earnings. Investors placed a much higher value on Grant's prospects than an analysis of the company's cash flow from operations would have warranted.
Financial Analysts Journal © 1980 CFA Institute