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Technology Stocks : Wind River going up, up, up!
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To: Mark Brophy who wrote (1377)6/25/1997 9:17:00 AM
From: JB   of 10309
 
Mark Good Try

Mark this is a good attempt, but you must do a lot better. First, your T-Bill assumption is probably too high given that the majority of the money a company has will only be invested for about a three month period to cover working capital needs. . Second, when a company capitalizes an expense this will result initially in a decrease in net income and EPS, not a increase as you claim. Thirdly, you point out correctly what WIND says in its 10K " When the technological feasibility of a software product has been established, development costs are capitalized." According to Financial Accounting Standards Board which sets accounting policy this would be the most conservative and recommended way to account for these costs. Once the software is going to become a money making product it will become a asset which should be capitalized. We all know that the product obsolescence in the software industry occurs in a short time. That is the reason way cost are capitalized in only 18 months. If WIND were up to accounting tricks they would capitalizes cost over a longer time period which would allow them to report higher EPS. Lastly, maybe the reason INTS has not been capitalizing development costs is because their R&D department has not come up with a commercial product in awhile or that they want to report higher net income and EPS numbers.

Additionally, today's stock price is for what is going to occur in the future not what has occurred in the past. That alone would justify the difference between WIND and INTS
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