> It had 90 days working capital on hand when
> he took over — in other words, Apple was only
> three months away from bankruptcy.
Sorry for my finance ignorance -- but is that description correct? I'd assume that having 90 days working capital means that you can run the company as-is for 90 days with no additional revenue. Given that Apple presumably had some stream of revenue at the time, that seems like a far cry from being "three months away from bankruptcy".
It is basically correct. They had ongoing revenue from sales, but also had ongoing costs related to the producing those sales, in addition to overhead from salaries, facilities, etc. What you would need to look at is their profits, because that is what adds to capital. Apple was actually losing money at the time (lost $800 million in 1996 and $1 billion in 1997)[1], so the problem may have been worse than the simplistic "three months away from bankruptcy." It is difficult to tell for sure without doing a far more in-depth analysis, but having 90 days working capital at an unprofitable company makes the "three months away from bankruptcy" assertion quite reasonable.
Shh. Don't think logically. It makes for a better story if you make up your own facts, like when MSFT saved Apple by giving them $150M out of the goodness of their hearts.
Working capital is short-term assets minus short-term debts. So yes, you are correct. A company could have a ton of long-term assets, but very low working-capital. It's too much of a simplification to say low working-capital means you are close to bankruptcy.
In the most basic of definitions, Days Working Capital tells you how many days you can operate before your working capital is gone. WC's equation is current assets(accounts receivable, inventory) - current liabilities(accounts payable). This tells you how well a company can pay off its short term debts.
The days working capital number tells you how well it can pay off its debt, but it can also tell you how efficient a company is. This is where the author made a mistake. A company with 10 days WC may be in better shape than a company with 90 days WC depending on how well they are operating. If a company holds almost no inventory by having suppliers who can deliver in a short time period, the company will save lots of costs by keeping inventory down, which will then lower their DWC.
Basically, if Apple stopped selling products and just sat there, they'd be bankrupt in 90 days. But this is unrealistic, and thus, the authors words were a bit over dramatic.
Sorry for my finance ignorance -- but is that description correct? I'd assume that having 90 days working capital means that you can run the company as-is for 90 days with no additional revenue. Given that Apple presumably had some stream of revenue at the time, that seems like a far cry from being "three months away from bankruptcy".