excerpt Under the new rules, the acquiring company must value that
premium — which is known as "goodwill" in accounting
parlance — as an asset on their books and valued once a year.
On one hand, many companies will report higher-than-expected
quarterly profits in 2002 because they won't have quarterly
write-offs of goodwill.
"There will be a benefit, that's unequivocal," says Chuck Hill of
Thomson Financial/First Call, which tracks corporate earnings.
The accounting change doesn't affect the company's cash flow,
so in theory, it shouldn't affect the stock price.
However, some investors might bid the stock up anyway
because of its higher reported earnings.
But, Hill says, "My rough rule of thumb is you end up halfway
between."
A 10% boost to earnings would result in a 5% increase in the
stock price, Hill says.
On the other hand, after the initial bump this year, earnings will
look paler by comparison in the following years.
"It reduces everybody's growth rate," says Ross Margolies of
Salomon Bros.
truth be known, this where the shananagins begin...it'll look good but, the reality will not. and nobody really cares? or so it will seem...trade..err tred accordingly. |
