ID5-7:

Fortune ran an article on Bob Olstein, an investment analyst who was particularly bullish at the time on several well-known stocks. He said the following indicators were the keys to his success: (1) a recent dramatic drop in the stock price, (2) company reports of positive free cash flow (net cash from operations minus capital expenditures), (3) conservative accounting methods, (4) a buildup in raw materials and partially completed inventory compared to finished inventory, (5) an increase in discretionary expendi- tures such as research and development, (6) undervalued assets on the balance sheet, (7) little or no debt combined with a high return on assets, and (8) consistency between what the presidents letter said and what had actually happened over the past few years.

REQUIRED:

Explain how each of the eight items could provide a positive sign about a company.