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Technology Stocks : Dell Technologies Inc.

DELL 133.20

+5.7%

Nov 26 3:59 PM EST

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To: Sr K who wrote (147602)	11/18/1999 9:11:00 AM
From: Chuzzlewit	Read Replies (1) of 176387

Sr K, Dell's cash flow statements actually show a significant benefit (from tax savings) from the exercise of stock options, so the distortion is exaggerated. Yes -- they book the benefit (taxes) but not the cost! Unfortunately, virtually all companies play this game with the notable exception of Warren Buffet; when he buys a company he ends executive stock compensation plans. Later on today I will put up my cash flow numbers on the LU thread (after putting on my crash helmet). The problem the LU is that internal management stinks! They have high inventory levels and high A/R. I don't care how good your profitability is if you are unable to manage your financial resources you cannot grow without recourse to outside sources of cash. By contrast, DELL is excedingly efficient, and that's why it has such a high ROIC. And that, by the way, is the reason I argue against the write-offs. How can you calculate a meaningful ROIC if you cannot calculate the real capital base? TYC is another story. There is very strong operating cash flow at TYC, and as more buy side analysts discover this I expect the stock will soon be back to its old highs. For analytical purposes I have nothing against the one time write-off regardless of whether it's done an a cash or equity basis. If the acquisition is on an equity basis I treat it as if it were cash followed by issuance of stock. But reporting income before these onetime expenses is just plain wrong. But "reserves" are another matter altogether. In cash flow analysis reserves do not exist! So what I end up with are two time series: the first is operating cash flow, and the second is free cash flow. My approach is to treat a company's accounting like a kids cigar box accounting for a lemonade stand. You are doing well when there is more cash in the box at the end of the day than the beginning. I used to tell my clients: "You don't pay your bills with earnings. You pay them with cash." TTFN, CTC

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