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Strategies & Market Trends : Value Investing
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To: TimbaBear who wrote (15030)8/2/2002 7:35:57 PM
From: TimbaBear  Read Replies (1) of 78507
 
Stock Options Accounting and Insider Profit-Grabbing:

This look at DELL has been very revealing for me.

They reported net income of $.46/share
They claimed (and showed) cash from operations success of $1.39/share ($3,797 CFO divided by 2,726 diluted shares)
We derived Real FCF flowing to the bottom line of $.14/share

So....let's see....if I want to be compensated, let's say, twice the amount I could make on a CD for assuming the risk of being in the market....what would a share of DELL (or any company making these numbers) be worth to me?

Let's assume a generous 5% CD rate. Then I would want 10% rate of return. So....

$.46 divided by 10% means a share should cost me no more than $4.60/share based on reported EPS

$1.39 divided by 10% means a share should cost me no more than $13.90/share based on claimed CFO.

$.144/share divided by 10% means a share should cost me no more than $1.44/share based on Real FCF.

No more than $1.44/share! Amazing! And it closed today above $24.00. Think it has some room to drop yet?

I think what prompted me to post this analysis is a combination of the sheer effrontery of DELL to take 90% of owner's earnings and divvy them up internally and the fact that I haven't heard one single analyst mention this finding. I mean DELL has to be one of the most followed companies in America. How many mutual funds and pension plans must own this dog?

What does that say about the analytical skill level of our so-called professional fund managers?

The next post covers the accounting gimmicry they used.

Timba
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