06/17/96 DID EXCEL REALLY EXCEL?

DID EXCEL REALLY EXCEL?

A``dream stock'' is how some investors describe Excel Communications (ECI), a fast-growing Dallas long-distance company. Initially offered to the public on May 10 at 15, the shares closed that day at 29 3/8, hit 47 on May 21--but had slipped to 35 1/4 by June 4.
Watch out. Excel could sag further. So warns Howard Schilit, an accounting professor at American University in Washington and president of the Center for Financial Research & Analysis.
Excel buys long-distance time from such providers as AT&T and MCI at wholesale rates. It resells it at a higher price under its own name. Schilit notes that the company has no phone network of its own and contracts out the switching and transmission of calls.
What troubles Schilit is the way the company changed its accounting prior to going public. He says Excel doubled net income by capitalizing some marketing costs and deferring revenue instead of posting it when received.
Schilit maintains that Excel's profit surge in 1995 and the first three months of 1996 ``related more to accounting changes and less to its business growth.'' He figures the change accounted for $22.7 million (or 51%) of the company's reported $44.4 million net income for 1995, and about $11.9 million (or 35%) of the $34 million earnings reported for the March, 1996, quarter.
``We're also concerned that Excel's cash flows from operations trailed net income during the March quarter because of the accounting change,'' Schilit says. The company generated only $9 million in cash flows but reported net income of $34 million. BUSINESS WEEK'S repeated calls to Excel CEO Kenneth Troutt weren't returned.
BY GENE G. MARCIAL