Motley Fool: Be wary of companies with high ‘burn rates’

Q: Whats a companys burn rate? — BC, Santa Rosa, California

A: Its a measure that reflects how quickly a company is burning through its cash. You neednt
worry about it with most established companies, but it can be worth checking the burn rates of
smaller, fast-growing or shakier companies.

Imagine, for example, that in its most recent quarterly report, Spray-on Socks Co. (ticker:
PFFFT) reported negative $50 million in free cash flow, as its cash balance fell to $100 million
from $150 million. Its not unusual for companies to lose money in their early years, but burning
through money too rapidly is also what puts many of them out of business.

In PFFFTs case, at its current burn rate of $50 million per quarter, it will run out of cash in
just a few quarters. To stay alive, it will have to cut spending (which could slow its growth) or
find more money (perhaps taking on debt or issuing additional stock, which can hurt existing
shareholders).

Fools school:
Understanding credit scores

Its important to understand the role of your credit record and credit score in your life
because a poor credit profile can cost you thousands of dollars. Lenders, insurance companies,
potential landlords and others can use your credit score to determine rates theyll charge you
and/or whether they even want to do business with you. Utility companies can base the deposits they
require from you on your credit score, and even potential employers may want to look at your credit
report. Heres what you need to know:

There are three main credit-reporting agencies — Equifax (equifax.com), Experian
(freecreditreport.com) and TransUnion (truecredit.com). Each calculates its credit scores a little
differently. Some lenders look at only one of the bureaus scores, some look at all of them and
take the average, some look at all and take the best — and some take the worst. When you hear of
your FICO score, it refers to the score developed by Fair Isaac Corp. that most lenders check.
Its available via the myFICO.com website.

One reason for big differences in credit reports and scores between agencies is that they dont
all collect the same information. Some lenders may report your credit activity to one agency, but
not another. There may also be a serious error on one agencys report, affecting its score.

Also relevant is the timing of when in the credit cycle your score is calculated. Lenders
typically report the last amount you were billed as your current balance. If your reported
credit-card balance is very low, then your debt-to-available-credit ratio is going to be low,
too, helping your score. Large balances can depress your score.

By law, youre entitled to a free copy of your credit report from each bureau annually. You can
get them all easily via annualcreditreport.com. Its worth checking your reports at least once a
year, looking for any errors and getting them fixed. Paying bills on time and being responsible
about credit will give you a better credit score, which could save you a lot of money.

Foolish trivia:
Name that company

I trace my roots back to 1886, when my founder bought a flooring business in Racine, Wisconsin,
and developed a paste wax floor care product. I started offering paid vacations to employees in
1900, and in 1934, during the Great Depression, I established a pension plan. Im still known as a
good place to work. I hired Frank Lloyd Wright to design some of my buildings. I generate about $10
billion in sales annually and employ about 13,000 people. My brands include Pledge, Duck, Oust, Mr.
Muscle, Windex, Saran, Kiwi, Scrubbing Bubbles, Raid, OFF! and Ziploc. Who am I?

Last Weeks Trivia Answer

I was founded in Little Rock, Arkansas, in 1971, and in 1973, my first night of continuous
operation featured 389 employees and 14 jets delivering 186 packages overnight to 25 cities. Who am
I? (Answer: FedEx)

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