Stuffing the Channel
Q What’s going on if a company is “stuffing the channel”? — S.P., Biddeford, Maine
A Something sneaky — and potentially fraudulent — because stuffing the channel involves inflating sales figures by sending out much more product than can be sold (perhaps by offering deep discounts and incentives) and thereby posting strong sales. That’s problematic because many items will likely end up returned and won’t have actually been sold.
To see how well a company is doing, investors and stock analysts look at its financial statements. Revenue — also known as sales — is one important metric, and it’s smart to look out for signs of channel stuffing. If a company’s accounts receivable are growing faster than sales, that’s a red flag. To find out, you can track the “days sales outstanding” (DSO) figure, which reflects how long it typically takes a company to receive payment for sales. To calculate it, divide accounts receivable (money owed to the company) by sales, then multiply the result by the number of days in the period (such as 91 for a quarter or 365 for a year). Less than 45 days is considered low.
A company with a low DSO is getting its cash back quickly. A high DSO might reflect generous payment terms. Rising numbers can signify channel stuffing. (This doesn’t apply to every industry, though; some, such as restaurants, receive much of their income immediately.)
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Q How many mutual funds are there? — H.V., Alpharetta, Georgia
A There were 137,892 regulated open-end funds worldwide as of the end of 2022, per the Investment Company Institute, and 8,763 mutual funds in the U.S. (some of which are funds that invest primarily in other funds).