Dear Robert:
You have fallen into a trap that equates market value which is speculated on some possible future earnings which because they haven't happened yet, is not in those two statements put out by companies every quarter. These statements cover historical data and only reflect what really happened to that point. Examples abound to the fact that the market overvalues companies that have known values. A test of an oil company with perfectly known reserves was part of a stock market game. Consistently the stock was valued over its true value, heck even over its maximum possible value, for most of the period covered. Only at the very last did market value track real value and that just before the point where its value would be zero (oil field depleted) in an value collapse.
Take a look at AMD, it has a TSE of $3.8 billion or $11.16 a diluted share. At friday's close, it had a market worth of $17.00 or $5.84 a share over book. At $0.05 a share per quarter, it would take 29.2 years to make book value match current market value. At $0.42 a share per six months, it would take 7 years. At $1.84 a share (TSE) per six months, it would take only 1.58 years to match book value to current market value.
Now the same numbers for Intel. TSE about $5.33 a diluted share and with a market value of $29.93 or $24.60 over book. At $0.03 a share earnings, it would take 205 years to make book equal to market. At $0.10 a share earnings, it would take 61.5 years, and at $-0.087 a share per six months, it would reach zero in 30.6 years. Using the non GAAP number, $0.12 per diluted share this quarter, it would take 51.2 years to match, and at $0.28 per diluted share YTD, 43.9 years.
All but, AMD numbers by TSE increase and six month earnings, are too far away to be anything other than speculation. AMD by TSE increase means if that continues, in 1.5 years, things would have to be pretty bad for AMD to go below current stock price. Intel, OTOH, could drop like a rock and still be over valued.
All I noted was that Intel's balance sheet showed $600 million in losses over the past six months in TSE. This occured at the same time their income statement showed $680 million in gains (its not allowed to exclude costs in the GAAP version). How is this possible? Simple, some transactions are not included in the income statement put out by Intel. These include stock options granted to employees (something I think should be included in the income statement and also wanted by NASB, the maintainers of GAAP).
AMD also doesn't have these costs on their income statement either. It is just that theirs increased TSE by over 600 million in the past six months ($1.84 a share with only $0.42 reported earnings). It is the capture of these hidden costs that makes TSE more valuable than the income statement. The companies typically bury them sometimes in the comments section. I think these adjustments should be in a clear and concise section similar to the income statement titled something like additional balance sheet adjustments. Wouldn't you like to know these "charges"? Well for Intel, they subtracted $1.28 billion from earnings in the last six months, and for AMD, added more than $470 million to earnings.
As to "Imagine INTC borrowed money in the market place by issuing add'l long term debt. Imagine they did that a day before announcing earnings. SE would go down since LT liabilities have just gone much further up. How in the world would that have ANYTHING to do with earnings for that quarter? LOL Come on just admit you are missing it here and get on with learning the right answer."
In that case, both assets (cash, new capex, etc.) and liabilities both go up the same amount. Result, no change to TSE. Laughs on you. Forgot the balancing entries didn't you? If they gave the money away, it would be an expense on their income statement, "we gave away $X billion to charity, so, too bad we spent your money on something foolish!" Bet you would be very angry, if you owned stock in that company.
Pete |
