Friday, July 30, 2010


Recent uncertainties in financial and credit markets have produced misleading information about the availability of business financing. For most small business owners, it is probably not clear if commercial finance funding is realistically available to them or not. It seems apparent that there have been many reports suggesting that normal commercial loan channels are either frozen or extremely sluggish. In reality there are more opportunities for commercial finance needs than suggested by such reports.

One harsh reality that is unfortunately true for commercial financing: many banks have discontinued all or most of their business lending activities, often with very little advance notice. However, in spite of this admittedly bad news, there continue to be to reliable funding sources for commercial real estate financing, business cash advances and working capital loans. At the same time, the current negative economic conditions will prove to be difficult for most businesses and commercial borrowers should expect that extra efforts will be required to successfully arrange business financing.

One common example of commercial finance misinformation distorting what is actually feasible: several publications have suggested that most new business financing requests are on hold or have simply been rejected due to recent credit market uncertainties. While the sources for this information might have been truthfully told by one or more lending institutions that they are in fact deferring new commercial loan funding, this does not mean that is the case throughout the United States. If we were discussing automobile sales, it would be comparable to concluding that nobody is selling any cars anywhere after learning that two manufacturers and five major dealers announced that they were going out of business due to lack of adequate sales.

Another example of how business finance funding reports might confuse small business owners: some kinds of commercial financing have been more disrupted than others by recent events. It is possible that commercial borrowers will be unnecessarily confused by a report that primarily applies to a very specialized form of business financing rather than to all variations of commercial loans.

For example, by most accounts commercial construction loans are in short supply currently. A more accurate version would reflect that the number of commercial lenders currently active in construction financing has shrunk dramatically, which means that such specialized business loans are available but not as easily available as they were just a few months ago. At the same time, most commercial real estate loans without new construction have not been as severely impacted as funding requests which do involve construction financing.

In the current commercial funding crisis, small business owners should actively seek a commercial loans expert for a candid discussion and realistic assessment about small business loans and working capital financing. Despite the many reports about limited availability of business financing, some commercial lending activities such as business cash advance programs are as active as they have ever been.

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Thursday, July 29, 2010


The 5 Secrets of Cash Flow Forecasting

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Tuesday, July 27, 2010

(BN) Apartment Rentals Surge in U.S. as Foreclosures Rise, Job Growth Resumes

Bloomberg News, sent from my iPhone.

Apartment Rentals Surge in U.S. on Home Foreclosures, Job Gains

July 27 (Bloomberg) -- U.S. apartment landlords are seeing a surge in rentals as mounting foreclosures reduce homeownership and an improving job market for young adults encourages them to find their own places to live.

The number of occupied apartments increased by 215,000 in the 64 largest U.S. markets in the first half of the year, according to MPF Research, almost twice the units added in all of 2009 and the most since the firm began tracking the data in 1992. The vacancy rate declined to 6.6 percent last month from 8.2 percent in December.

"Overall demand is pretty stunningly strong in the first half," Greg Willett, a vice president at the Carrollton, Texas- based apartment-industry research firm, said in an interview.

Investors are betting the expanding ranks of renters will lead to earnings increases next year of about 5 percent to 10 percent or more for apartment real estate investment trusts such as Equity Residential and AvalonBay Communities Inc. UBS AG this month raised its rating on AvalonBay, Essex Property Trust Inc. and Post Properties Inc. to "neutral" from "sell."

The change signifies a "less bearish" view on apartments, while acknowledging that "headwinds will remain," according to the July 7 report by New York-based analysts Dustin Pizzo, Ross T. Nussbaum and Derek Bower.

"The apartment REITs have priced in the most growth within the broader REIT group and as such are most vulnerable if the economy slows and job growth does not begin to come through in a meaningful way," they wrote.

The Bloomberg REIT Apartment Index gained 24 percent this year through July 23, double the 12 percent advance in the broader Bloomberg REIT Index. The Standard & Poor's Supercomposite Homebuilding Index fell 5.4 percent.

Job Growth

The economy's recovery from the worst recession since the 1930s has revived hiring enough to stimulate demand for apartments. The growth hasn't been enough to prevent more home foreclosures, which lift rental demand, or to lead to a sustained rebound in homebuying.

New jobs are the biggest driver of apartment occupancy. Employers began hiring again in January, adding an average of 147,000 jobs a month through June, according to the Labor Department. Employment for people 20 to 29 years old -- a key group for landlords -- rose in May and June on a year-over-year basis for the first time since the end of 2007.

While payroll growth has been modest compared with pre- recession levels, it may be enough to have persuaded some families sharing housing with relatives to get their own places, according to Mark Zandi, chief economist of Moody's Analytics Inc. in West Chester, Pennsylvania.

Bunking With Brother

"Given how hard it is for families to live together for very long, they moved out as soon as they got a job or even thought they could find one," he said in an e-mail.

Mike Odenthal moved to the New York area in January from San Diego in search of a communications job, sleeping on his younger brother's couch in the Heights neighborhood of Jersey City, New Jersey. He moved out four months later after the condominium went up for sale, eager to live on his own and not wanting the sight of his possessions in the living room to discourage potential buyers.

"I was tired of depending on my family for housing," said Odenthal, 27, who also stayed with his parents in Jersey City. "I can't imagine doing that forever, and all retiring to Florida together."

Odenthal found a roommate and moved July 1 to Manhattan's Upper East Side, paying $700 a month for his share of the rent. The next morning he got an offer to work at a New York public relations firm.

Foreclosures Persist

Finances for homeowners didn't improve fast enough to prevent more than 1.65 million foreclosure filings in the first half, an increase of 8 percent from the same period in 2009, RealtyTrac Inc., a data company in Irvine, California, said July 15. A record 269,962 U.S. homes were seized from delinquent owners in the second quarter as lenders set a pace to claim more than 1 million properties by the end of 2010.

The U.S. homeownership rate fell to 67.1 percent in the first quarter after peaking at 69.2 percent in the fourth quarter of 2004, according to the U.S. Census.

"As homeownership continues to decline, people need to live somewhere," said Henry Cisneros, who was President Bill Clinton's housing secretary from 1993 to 1997 and is executive chairman of CityView, a real estate investment firm in Los Angeles that focuses on urban projects including apartments.

Sales Decline

The rate of new-home sales last month was the second-lowest on record, behind May, following the expiration of a government tax credit for homebuyers, the Commerce Department reported yesterday. Sales of previously owned homes fell 5.1 percent in June, the National Association of Realtors said last week.

"The rental market will be robust for the next few years," Cisneros said.

Effective rents, or what tenants pay after concessions or breaks from landlords, increased 1.4 percent in the biggest markets in the first half, according to MPF Research. Rents may rise 4 percent to 6 percent in both 2011 and 2012, compared with a gain of about 2 percent this year, Willett said.

AvalonBay, which took a nine-month hiatus from construction in 2009, said in April it had seven communities under development and would increase rents for tenants renewing in the second quarter. It raised its forecast last month for second- quarter and 2010 earnings based on "improved operating trends."

The Arlington, Virginia-based company's funds from operations, a widely used measure of earnings, will rise 8 percent in 2011, according to the medial estimate of 20 analysts surveyed by Bloomberg.

Equity Residential

Equity Residential, based in Chicago, has pushed rents up by "high single digits" in all of its markets since January, Chief Executive Officer David Neithercut said in a June 11 interview. Funds from operations in 2011 also will rise 8 percent, according to a survey of 22 analysts.

Landlords won't be able to raise rents too aggressively because unemployment remains high at 9.5 percent and declines in home prices have made it no more expensive to buy than rent in about half of larger markets around the nation, Willett said.

Buy Vs. Rent

In Atlanta, the median home price has fallen 37 percent to $110,100 from the peak in the third quarter of 2006, according to the National Association of Realtors. Assuming a 10 percent down payment and a 30-year mortgage at 5 percent, the monthly principal and interest cost is $532. That compares with average monthly rents of $774 in the city, Willett said.

Riverstone Residential Group of Dallas, which manages 175,000 units in 30 markets around the country, reduced average concessions to about a half-month's rent from about two months a year ago, CEO Walt Smith said. Vacancies have fallen below 5.9 percent in buildings that aren't newly constructed, from 8.25 percent last year. Smith said he expects significant rent growth by 2012 as supply tightens with so few new units being built.

"Landlords are cautiously testing the strength of the submarket their property is in to see if the market will withstand small rent increases," Smith said. "In most markets, they've been successful."

To contact the reporter on this story: Prashant Gopal in New York at

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(BN) Home Prices in 20 U.S. Cities Rise More Than Estimated, Case-Shiller Shows

Bloomberg News, sent from my iPhone.

Home Prices in 20 U.S. Cities Rose More Than Forecast

July 27 (Bloomberg) -- Home prices in 20 U.S. cities rose more than forecast in May from a year earlier as a government tax credit temporarily underpinned sales.

The S&P/Case-Shiller index of property values increased 4.6 percent from May 2009, the biggest year-over-year gain since August 2006, the group said today in New York. Another report showed consumer confidence dropped this month to the lowest level since February.

A retreat in demand since the April 30 contract-signing deadline to be eligible for an incentive worth up to $8,000 raises the risk home prices will slacken in coming months. The lowest mortgage rates on record are making houses more affordable, which may help overcome some of the effect of the mounting foreclosures that are pressuring property values.

"We just are going to muddle through for a while," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who forecast the index would rise 4.5 percent, the closest of those surveyed. "I'm not looking for big movement from here either up or down."

The Conference Board, a New York-based research group, said today its consumer confidence measure dropped to 50.4 in July from a revised 54.3 the prior month. Growing concern over the outlook for incomes and the economy over the next six months depressed the index.

Shares Rise

Stocks rose after the reports on improving corporate earnings. The Standard & Poor's 500 Index climbed 0.4 percent to 1,118.86 at 10:03 a.m. in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 3.04 percent from 2.99 percent late yesterday.

Economists forecast the home-price index would rise 3.9 percent after a 3.8 percent year-over-year increase in April, according to the median of 26 forecasts in a Bloomberg News survey. Estimates ranged from 2.9 percent to 5.1 percent. Year- over-year records began in 2001.

The gauge rose 0.5 percent in May from the prior month after adjusting for seasonal variations, following an April increase of 0.6 percent. Unadjusted prices climbed 1.3 percent from the prior month.

The year-over-year measure provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

California Rebounds

Thirteen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year increase, led by an 18 percent gain in San Francisco and a 12 percent increase in San Diego.

Compared with the prior month, 19 of the 20 areas covered showed an increase on an unadjusted basis, led by a 2.8 percent gain in Minneapolis and a 2 percent advance in Atlanta. Las Vegas was the only city to show a month-over-month drop.

"There may still be some residual impact from the homebuyers' tax credit," David Blitzer, chairman of the index committee at S&P, said in a statement. "It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy."

Sales of existing houses reached an almost three-year high in November, the month the government's tax incentive was originally due to expire. Since the extension lapsed on April 30, demand has again retreated.

Jobs Needed

With the April 30 deadline for signing a contract now past, it will be up to advances in the labor market to support home sales. Private U.S. companies added 83,000 jobs in June, fewer than economists had forecast, and initial jobless claims have averaged 449,700 this month, a sign firings remain elevated.

Another challenge to new home sales is the rising tide of foreclosures. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.

NVR Inc., based in Reston, Virginia, said last week the original June 30 closing deadline to qualify for the tax incentive resulted in a "surge in settlement activity" in the second quarter, with closings jumping 63 percent from the same time a year earlier. BY contracts, new orders fell six percent in the period.

A drop in borrowing costs is helping to mitigate the decrease in housing demand. The average rate on a fixed 30-year mortgage dropped to 4.56 percent last week, the lowest since data began in 1972, according to figures from Freddie Mac.

 ============================================================                1-months 3-months 6-months  1-year  2-years                earlier  earlier  earlier  earlier  earlier ============================================================ US Composite-20   1.27%    1.65%    0.17%    4.61%  -13.15% ------------------------------------------------------------ Minneapolis       2.83%    2.35%   -1.36%   11.61%  -12.55% Atlanta           2.02%    2.05%   -1.35%    1.74%  -13.25% San Francisco     1.71%    5.56%    4.05%   18.31%  -12.62% Los Angeles       1.68%    1.66%    2.92%    9.73%  -12.02% Boston            1.56%    2.98%    1.28%    4.83%   -2.74% Dallas            1.50%    4.02%   -0.02%    2.94%   -1.38% Washington DC     1.45%    3.17%    1.62%    7.44%   -8.62% Chicago           1.22%   -0.55%   -5.77%   -1.48%  -18.70% Portland          1.18%    2.99%   -1.60%    0.69%  -15.70% Seattle           1.16%    2.27%   -1.17%   -1.44%  -17.83% San Diego         1.07%    3.29%    4.52%   12.44%   -8.38% Cleveland         1.03%    4.25%    1.05%    3.66%   -2.78% Miami             0.89%   -0.81%   -1.84%    1.20%  -24.26% Tampa             0.88%    1.28%   -0.98%   -1.47%  -21.93% Phoenix           0.85%    0.81%   -0.86%    7.18%  -29.44% New York          0.82%   -0.08%   -1.29%   -0.42%  -12.24% Detroit           0.71%   -3.20%   -5.69%   -2.51%  -26.38% Denver            0.58%    2.97%   -0.04%    3.60%   -1.15% Charlotte         0.29%    0.35%   -1.91%   -2.85%  -12.59% Las Vegas        -0.46%   -1.02%   -1.79%   -6.53%  -36.47% ============================================================ 

To contact the reporter on this story: Courtney Schlisserman in Washington at

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Monday, July 26, 2010

(BN) Property Debt Liquidated by Servicers at `Anemic' Pace, Credit Suisse Says

Bloomberg News, sent from my iPhone.

Commercial Property Loan Disposals 'Anemic,' Credit Suisse Says

July 26 (Bloomberg) -- Servicers are liquidating soured commercial property loans bundled into bonds at an "anemic" pace as large mortgages delay the process, creating uncertainty as to the size of losses, according to Credit Suisse Group AG.

Of nearly 4,900 troubled loans, 86 totaling $494 million were liquidated last month, Credit Suisse analysts Serif Ustun and Sylvain Jousseaume in New York wrote in a July 23 report. More than 80 percent of those loans were less than $10 million and the largest had only $27 million in balance, the analysts said.

Roughly 50 loans with balances greater than $50 million have been with special servicers, firms that handle troubled loans packaged in bonds, for at least one year, the report said. Debt is transferred to a special servicer if a borrower misses payments or requests a modification to ease potential problems. Some loans have been with special servicers for more than two years, according to the report.

"Large loans take more time because they are more complicated," Ustun said in a telephone interview. "The pace of monthly loan liquidations was still anemic," compared with the overall group, he said.

So-called loss severities on liquidated loans contained in commercial-mortgage bonds for June averaged 58 percent, compared with 65 percent for 2009, according to data from Zurich-based Credit Suisse. That compares with average loss severities of 36 percent in previous years, the report said.

'Rule of Thumb'

One of the few large loans that have been liquidated since 2008, an $87 million mortgage on the West Oaks Mall in Houston, suffered a loss of 98 percent when it was disposed of in late 2009, the report said.

"There is no easy rule of thumb" to predict losses on large and complex debt, Ustun said. "For larger loans, it can be 20 percent or it can be 100 percent. It really depends on the specifics."

The average size of a problem loan that's been liquidated is $5 million, compared with an average of $15 million for loans that have been modified, the report said. Of loans that were restructured, 41 percent were extended for an average of 22 months.

"The major uncertainty for us currently is whether these loans have been truly 'worked out' to survive the continuing softness in the economy and the dearth of financing for smaller- size loans versus large institutional 'mega' loans," the analysts said.

To contact the reporter on this story: Sarah Mulholland in New York at

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Sent from my iPhone Article: New Home Sales Surge in June, Inventory at 42-Year Low Article: New Home Sales Surge in June, Inventory at 42-Year Low

Sales of new U.S. single-family homes rebounded strongly in June from the prior month's record low, government data showed on Monday, driving the number of houses on the market to their lowest level in nearly 42 years.

Full Story:

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Sunday, July 25, 2010

(BN) Growth in U.S. Probably Cooled as Spending Slowed, Trade Deficit Swelled

Bloomberg News, sent from my iPhone.

Growth Probably Cooled as Spending Slowed: U.S. Economy Preview

July 25 (Bloomberg) -- The U.S. economy expanded at a slower pace in the second quarter as consumer spending cooled and the trade deficit swelled, economists project a report this week will show.

Gross domestic product rose at a 2.5 percent annual pace after increasing at a 2.7 percent rate in the first three months of the year, according to the median estimate of 68 economists surveyed by Bloomberg News before a July 30 Commerce Department report. Other data may show gains in business investment are taking up some of the slack, while housing is mired in a slump.

Less growth heading into the second half of the year means employers will hesitate to take on staff and will keep a lid on prices to spur sales. Federal Reserve Chairman Ben S. Bernanke last week said the central bank is prepared to take further policy actions if the world's largest economy "doesn't continue to improve."

"We're experiencing a relatively subdued and fragile recovery," said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. "That fits with subdued payroll growth and subdued inflation going forward."

The GDP estimate is the first of three for the quarter, with the other releases scheduled in August and September when more information becomes available.

Consumer spending, which accounts for about 70 percent of the economy, increased at a 2.4 percent annual rate last quarter after growing at a 3 percent pace the previous three months, economists project the report will show.

Spending Outlook

A lack of jobs, a loss of household wealth stemming from the slumps in stocks and housing, tight credit and the need to reduce debt and rebuild savings are among reasons economists forecast spending will be slow to recover. Purchases will increase at a 2.6 percent pace on average in the second half of the year, according to the median estimate of economists surveyed earlier this month.

Company payrolls rose by 83,000 in June, while overall the economy lost 125,000 jobs, the Labor Department reported July 2. The unemployment rate fell to 9.5 percent as discouraged workers dropped out of the labor force.

A widening trade gap and a slower pace of inventory restocking also depressed growth last quarter, economists said. Stockpiles climbed 0.1 percent in May, the smallest gain this year, according to Commerce Department data.

Imports Climb

The trade deficit adjusted for inflation, the figures used in calculating GDP, averaged $45.1 billion a month in April and May, up from $42.3 billion a month in the first quarter as imports climbed faster than exports, according to figures from the Commerce Department.

The government will estimate June figures for trade and inventories, which will not be available until next month, in calculating growth.

Business investment is one area charging ahead. Spending on equipment and software contributed 0.7 percentage point to growth in the first three months of the year.

A report from the Commerce Department on July 28 will show orders for goods meant to last at least three years increased 1 percent in June, the sixth gain in seven months, according to the survey median.

The recent surge in imports reflects in part the increases in U.S. business investment on new equipment. United Parcel Service Inc., the world's largest package-delivery company, raised its annual profit forecast last week after net income last quarter jumped 90 percent from the same period in 2009.

Economic Bellwether

Domestic shipments will continue to grow roughly in line with U.S. gross domestic product, and exports from Europe and Asia will continue to improve, even if the pace "moderates" somewhat in the second half of this year, UPS executives said. UPS and FedEx Corp. are considered economic bellwethers because they deliver goods ranging from clothing to pharmaceuticals and industrial parts.

"Despite the anticipated slow pace of the U.S. recovery and a cautious outlook for Europe, we are confident in our ability to grow the business and improve profits," Chief Financial Officer Kurt Kuehn said in a July 22 statement.

The Standard & Poor's 500 Index has dropped 5.7 percent since the end of the first quarter on concerns that the European debt crisis will curb global growth. The index climbed 0.8 percent to 1,102.66 at the 4 p.m. close on July 23, its first gain above 1,100 in a month.

One industry likely to weigh on growth in the coming months is housing. Sales of new homes rose to a 311,000 annual pace in June, second to May's 300,000 rate as the lowest on record, the survey median showed ahead of a report tomorrow from the Commerce Department. Purchases plunged an unprecedented 33 percent in May after a tax credit expired on April 30.

Confidence measures will show Americans grew more pessimistic this month about the economy. The Reuters/University of Michigan index of consumer sentiment, due July 30, dropped to 67 from 76 in June, according to the survey median. The Conference Board's consumer confidence gauge dropped to 51 from 52.9, the survey showed ahead of the July 27 report.

                         Bloomberg Survey  ==============================================================                         Release    Period    Prior     Median Indicator                 Date               Value    Forecast ============================================================== New Home Sales ,000's     7/26      June      300       311 New Home Sales MOM%       7/26      June     -32.7%     3.7% Case Shiller Monthly MO   7/27      May       0.4%      0.2% Case Shiller Monthly YO   7/27      May       3.8%      3.9% Case Shiller Monthly In   7/27      May      144.6     145.3 Consumer Conf Index       7/27      July      52.9      51.0 Durables Orders MOM%      7/28      June     -0.6%      1.0% Durables Ex-Trans MOM%    7/28      June      1.6%      0.4% Initial Claims ,000's     7/29     24-Jul     464       460 Cont. Claims ,000's       7/29     17-Jul     4487      4500 GDP Annual QOQ%           7/30      1Q A      2.7%      2.5% Personal Consump. QOQ%    7/30      1Q A      3.0%      2.4% GDP Prices QOQ%           7/30      1Q A      1.1%      1.1% Core PCE Prices QOQ%      7/30      1Q A      0.7%      1.0% Employ Costs QOQ%         7/30       2Q       0.6%      0.5% Chicago PM Index          7/30      July      59.1      56.0 U of Mich Conf. Index     7/30     July F     66.5      67.0 ============================================================== 

To contact the reporter on this story: Timothy R. Homan in Washington at

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Monday, July 19, 2010

Find Tenant's Altman Z-score to determine solvency

A recent article from American Express Open Network gives us a guideline for determining the solvency of companies that may even be our tenants in commercial properties. The article uses NYU Prof. Max Heine's updated research of the Altman Z-Score by Edward Altman. Brief Recap:

The Altman Z-score for Predicting Bankruptcy

The Z-score formula developed in 1968 by Edward Altman determines the probability that a company will go bankrupt within two years.  It remains the most-used and most-respected method for predicting bankruptcy.  The formula was originally designed for public manufacturing companies with at least $1 million in assets but versions for non-manufacturing and private companies have been developed.  Multiple tests have been conducted in the 40 years since the formula was developed to determine its efficacy.
Recent follow up tests show that the formula is 80 percent to 90 percent accurate at predicting bankruptcy within one year.

Ingredients for an Altman Z-score

The Z-score is basically a mathematical formula that takes the weighted sum of five key business ratios.  The five ratios that are used to calculate the Altman Z-score are:

  • T1 = Working Capital / Total Assets
  • T2 = Retained Earnings / Total Assets
  • T3 = Earnings Before Interest and Taxes / Total Assets
  • T4 = Market Value of Equity / Book Value of Total Liabilities
  • T5 = Sales / Total Assets
These five ratios are each multiplied by a coefficient before being added together to arrive at the Z-score. 

The standard formula is:

Z = (1.2*T1) + (1.4*T2) + (3.3*T3) + (0.6*T4) + (.999*T5)

Interpreting the Z-score Results

After preforming the calculations above, the end result will be a number that you will then compare to the established Z-score classifications:

  • a Z-score greater than 2.99 puts the company in the safe zone which means bankruptcy is unlikely within the next two years
  • a Z-score between 1.80 and 2.99  puts the company in the grey zone which means it could go either way in the next two years
  • a Z-score below 1.80 puts the company in the “distress zone” which means bankruptcy is likely within the next two years
Some Things to Keep in Mind When Using the Z-score

The Altman Z-scored does not work for financial companies.  So if you are selling to banks, this isn’t an appropriate tool.  Also remember that the formula is modified if you are evaluating private companies and non-manufacturing companies.