Earlie, HB, Patron, anyone - I know this is so passe, but I've been reading balance sheets, and I'm curious:
I've started thinking like a fractional owner of a business again (gulp), and it would seem that a simple way of capturing a company's performance, rather than attempting to make sense of the ludicrous pro-forma EPS reports, would be to simply look at rates of change in "net equity", where I define "net equity" as total shareholder equity minus paid-in capital. (Does this have an economics-world name that I'm missing here?) They are two readily available lines in the balance sheet, and it seems like something that can't be warped too easily by any of the gimmicks that are in vogue right now.
For instance, if you look at MU, you see that equity increased from 2.7B to 4.0B in FY99, but paid-in capital increased from 0.6B to 1.9B. Hence, my figure stayed flat at 2.1B over the year. Regardless of what they said in EPS reports, they did not generate any equity that year, and that is the ultimate measure of success for a corporation, correct?
In FY00, these numbers increased to 6.4B and 2.9B respectively, so net equity increased from 2.1B to 3.5B, ie they generated 1.4B in shareholder equity that year.
In the first half of FY01, they have increased shareholder equity from 6.4B to 7.4B, but only because they have increased paid-in capital from 2.9B to 3.7B. Net equity increased from 3.5B to 3.7B.
So, for FY99, FY00, and FY01 (the first half), they have generated 0.0B, 1.4B, and 0.2B. So, during the ten quarters surrounding the *PEAK* of the tech mania, they managed to generate a grand total of 1.6B in equity. For that, Wall Street is paying $23B. That's 16X the peak year of equity generation, and obviously much more than that if you consider average equity generation by smoothing out the deeply cyclical changes in their earnings.
Have I screwed anything up here? Is there a better way to do this?
Suggestions, comments, improvements encouraged.
BC |
