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Technology Stocks : Semi Equipment Analysis

SOXX 296.20

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4:00 PM EST

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To: Return to Sender who wrote (1647)	1/14/2002 11:14:16 PM
From: Crossy	Read Replies (2) of 95581

RtS - an addendum, I recently concluded that from a valuation point of view cash and fixed interest investment assets (but not debt) of a firm should be SUBTRACTED from the "price" components of the PSR ratios (and also PE ratios if you calculate them). This makes the ratio comparison way more meaningful. I assume that a $5 bill has 5 dollars of value. Usually it doesn't matter if the asset is "inside" or outside the firm. If you apply DCF (discounted cash flow) analysis you follow that the value of a firm is the sum of all expected cash flows for some time in the future discounted annually by a factor (usually inflation or long bond yield or similar) to make the inflows & outflows comparable. I don't include any debt component here because its repayment is assumed in the underlying DCF calculations.. But what to do with "extra cash" ? IT won't appear anywhere here. But clearly if a firm got $100m in the bank in addition to its exp. cash flows it should be worth more as in case this "free cash" wasn't present. You could adjust for this by asessing this free cash and investment component and subtracting it from the price component in a PSR. Look at CLTK: cash around $8 per share in the bank. Instead of a PSR of around 2 you will end up with an adjusted PSR of 0.75. Very low and for a compound semi it's "close out" valuation. rgrds CROSSY

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