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Technology Stocks : Rockwell-Spins off Conexant (CNXT)
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To: David W. Taylor who wrote (1055)5/10/2000 9:00:00 PM
From: gpowell  Read Replies (1) of 2013
 
These charges can also be a result of the accounting procedures used to account for mergers.

For instance, the purchase accounting method will result in the majority of the purchase price of assets being assigned to goodwill. The goodwill is then depreciated over the life of the asset and the depreciation will be charged against earnings.

If stock was used as the currency to purchase the asset then the depreciation charge against earnings can be thought of as the "Physical" manifestation of the stock dilution. In this case, the charge to earnings should be discounted entirely - since the effects of the merger are up front, i.e. stock dilution.

In an ideal situation, the purchased asset would complement the existing business to an extent that any loss in "earnings" is more than made up. This isn't always the case though. However, even in these cases the earnings charges are just related back to the stock dilution.

These are good things to keep track of because they are a measure of management effectiveness. If the management of the company is continuing to piss away the value of their company through poor strategic decisions, you'll want to know it. That is one purpose of separating the effects of one-time charges and the metrics associated with the core business.
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