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Biotech / Medical : ROTC:Rotech medical
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To: Bryce Elkins who wrote (90)6/8/1997 11:33:00 PM
From: John Stichnoth   of 161
 
To the thread: Just to throw something out for discussion purposes:
Is Net Income growth the proper valuation measure here? Shouldn't it
be cash flow growth? The question is relevant because of ROTC's huge
goodwill balance and amortization. Because of the NI/CF difference,
the oxygen medicare reimbursement cut (whatever it will be) will have
a much smaller percentage impact on cash flow per share than eps.

For instance, a medicare cut that might have a .05 ps impact on NI
would be 22% reduction in net income--turning results short term into
a period of no earnings growth.

That same medicare cut would decrease cash flow per share from 61 cents
to 56 cents--still over the prior year's number by 18%. Not bad.

And, isn't cash flow the ultimate number we should be focusing on?
I.e., how much cash is the company adding to its bottom line? Or
at least, How much cash-generating ability is the company adding?

Just a thought.

Also, a question for the crowd: How much medicare-related oxygen
therapy is potentially recoverable from insurance companies providing
wrap-around "medigap" coverage? Is ROTC constrained to only accept
whatever medicare will pay them? All of the analysis I have seen
assumes that no recovery would be available. I don't have the
foggiest idea how these different parts interact, and am wondering
if anybody can help.

Regards, JS

PS--Bryce: Did you hear the one about Iomega being in play? Suitor
not named. Just a rumor. :-).
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