Cash earnings over a standard calculation of profits Message Board

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Strategies & Market Trends : Cash earnings over a standard calculation of profits

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To: William Harvey who wrote ()	11/5/1999 11:10:00 AM
From: William Harvey	of 1

The recording industry provides perfect examples of companies where most of their earnings are used to amortize product masters - the future earning power of a recording contract. The idea is to preserve the integrity of book value so that when an advance is paid to seal a contract, the book value gain is recording in terms of additions to the product master, seemingly a net asset. Convention states that this is like goodwill and that goodwill has to be amortized but whatever went into goodwill or product masters has to come out of net earnings and PE ratios. Integrity Music (NASDAQ:ITGR) records up to $3.5M in product masters amortization in a year. They earn after amortization, only $1.5M and yet their cash flow to price ratio is a brisk 2.5 to 1 where the S&P500 average is ten times that. It's surprising because without much cash or just $.30/share earnings they're still able to pay off over $2.5M in long term debt every year. Cash ain't trash. WH

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