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Strategies & Market Trends : Value Investing

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To: Michael Burry who wrote (3779)	4/8/1998 6:09:00 PM
From: Don S.Boller	of 78698

Michael: There is an article in the new issue of Forbes magazine.... page 248 (April 20th),titled "Reality Check"...it lays out the method used by Ernst Institutional Research - to evaluate earnings clients such as Fidelity Investmts., Colonial Funds,atc. Ernst's formula starts by comparing a co's growth in net worth over the course of a year to its growth in operating assets (basically plant, equip.,inventory). You subtract the latter from the former. The re- sult is a crude measure of...free cash flow...(putting a poss. dividend this is the amount of cash that has piled up. Then take this fig. and subtract the growth in liabilities...(in the ex. used - no change in liabs.). Divide the free cash by sales to get a percentage fig. In the ex. = 3% (ratio). This figure, in and of itself, is not meaningful. What is important is an upward or downward trend...One way to use the trend is to compare a co's.cash flow trend to its valuation. They give tables showing good p/e versus trend stocks and overpriced ones, too. Hope I'm not intruding here, with this. Best, Don

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