John, the Street tends to value companies on net future CASH flows. They see though GAAP issues to get to real value. Now one can of course argue about estimates of future cash flow and today's proper multiple, etc.
I think this is a very good example: Verisign (VRSN)
Check out last Qtr talk. Market Cap today is about $10 Billion. Per Yahoo! p/e is n/a since EPS is -$26 a share!
Pro forma net income for the quarter ended March 31, 2001, excluding the amortization of goodwill and intangible assets related to acquisitions, stock-based compensation charges related to acquisitions, gains and losses on equity investments, and benefit for income taxes, was $48.6 million, or $0.23 diluted earnings per share.
Including the amortization of goodwill and intangible assets related to acquisitions, stock-based compensation charges, gains and losses on equity investments, and benefit for income taxes, the net loss for the quarter ended March 31, 2001 was $1.4 billion.
SHAZAM! With 200 million shares outstanding there's a difference in the above comparison (annualized) of an 'operating' gain of about $1 a share profit (about $200 million) versus an all in accounting purposes loss of about $28 a share or $5.6 billion!
Most of this is Goodwill. I'd say Goodwill can ONLY be a positive since it's a non-cash item and acts as an expense to help offset income (or increase a large loss carryfoward) thereby reducing taxes the company must pay. Sweet. Street knows what's up, VRSN's mrkt. cap proves the point.
RO |
