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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Uncle Frank who wrote (2243)	5/26/1999 8:25:00 PM
From: Mike Buckley	of 54805

market cap is not a meaningful metric. Agreed. Market cap is important only in the way an investor perceives it relative to many other issues, some that are quatitative and some that are purely subjective. One of the best and quickest ways to put market cap into perspective is to calculate the "enterprise value." That's the market cap minus the cash plus the debt. (Factoring in the cash and debt does wonders for putting a market cap into perspective.) Consider that ramification in terms of the classic PSR. Where P is traditionally the market cap, calculate the PSR. After doing that, run the calculation using the enterprise value instead of the market cap. Compare the two calculations with companies that have little debt and lots of cash. Then make the same comparisons with companies that have lots of debt and little cash. It will be a very revealing exercise. I use the PSR only on a very casusal basis. When I get really serious about looking at a company, I always prefer to use the enterprise value-to-sales ratio. --Mike Buckley

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