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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Loring who wrote (28438)10/5/1999 7:02:00 PM
From: robt justine  Read Replies (1) of 42771
 
Loring:

I would agree with you about the balance sheet effect of retiring shares. I read Bryan's post to infer that NOVL would buy and sell the stock as any investor would; ie, sell it back into the open market.

But, I'd like to throw the following out for critique regarding the actual balance sheet effects of both scenarios of a company retiring its shares and also trading its own shares in the open market.

Should NOVL enter the market and purchase 100K shs @ 17, the immediate effect to the balance sheet would be a drop in cash of 1.7M and an asset increase in the investment account of like value.

Should the stock move to 20 and should NOVL management decide to sell that stock in the open market and NOT retire the shares, then the $300,000 realized gain (not incl costs) WOULD appear on the Income Statement as any other gain would appear (forgetting about the current/non-current asset classification of the position and any possible mark to market up to that date).

Should the stock move to 20 and should NOVL make a decision at that time TO RETIRE the shares, then the $1.7M would be removed as an investment from the asset side and the following would be the effect to the equity account:

Common Stock Account: -$10,000 (.10 par value)
Additional Paid in Capital: -$1.690M (par minus cost)
Retained Earnings: +$300,000 (mkt@time of retirement minus cost)
No Income Statement entry.

Appreciate any comments from the "green shades" on this one. I'm trying to see if I've got this one right. Thanks.
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