One Tiny Number Can Reveal Big Problems at a Global Smartphone Maker

Tucked away in a corporate earnings report—past the data on profit margins and revenue growth, hidden deep inside a balance sheet—is a number that can tell you a lot about a mobile phone maker's health. In the global smartphone war, brands are routinely measured by market share, revenue, profit, and the coolness of their ads. But one line item called finished goods inventory, which refers to the percentage of materials that were manufactured into phones but went unsold, can give insight into whether a company's fortunes are changing.

The latest company to let phones pile up in warehouses and on store shelves is HTC. The Taiwanese company's stock just fell to its lowest point in a decade after lowering its sales forecast on June 5 and announcing a NT$2.9 billion ($93 million) writedown, though it's recovered some of that loss amid speculation the decline could make it a buyout target. HTC's finished goods inventory had climbed to a record high 2.35 percent of total assets at the end of last quarter. During the company's heyday, that figure rarely nudged above 1 percent.