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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 80.66

+3.0%

Feb 2 3:59 PM EST

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To: JimieA who wrote (55581)	9/22/2001 7:14:31 PM
From: Stock Farmer	Read Replies (2) of 77400

Why, does Cisco need to generate $75 Billion in profits to be worth $10 a share? Is this some present value of all future net income? Yes, sort of. A prudent purchaser, such as Buffet, would not buy Cisco unless expectation of profit is at least equal to the expected cost. And Buffet's purchase price would be no less than market cap. To create a share price, one then must factor in dilution and an appropriate reduction for marginal purchase versus outright purchase (it's not a mistake that buy-outs come at a higher price than the marginal price). Now, that's with everything guaranteed. There is inflation to consider next, and then risk. Plus expected growth. It's a useful exercise to play with the numbers. Excel comes in very handy because of all that discounting back to present value stuff. John.

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