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Technology Stocks : Ascend Communications (ASND)

ASND 208.98

-1.8%

Dec 26 9:30 AM EST

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To: Jacob S. Rosenberg who wrote (9090)	8/18/1997 9:48:00 AM
From: WBendus	of 61433

For anybody still confused about the 8K and earnings reported. The 8K caused greater concern over revenues than earnings. ie. a scenario which would parrell ASNDS Estimates are for $300 in revenues and $105 earnings, with estimates of 25%, 25%, and 50%. Assume that COGS is 25% of revenues, reflecting variable costs of units sold, and that SGA are fixed at $40, this would be the monthly salaries of administrative and selling personnel, marketing and advertising, and other expenses which would fall under SGA. Month one estimates would be: sales of $75.00 (25% of 300) COGS of $18.75 (25% of 75) Gross Profit of $56.25 (75 - 18.75) less SGA of $40.00 (fixed expense) Operating Income $16.25 (56.25 - 40) Shares out 100 EPS .1625 (16.25/100) Suppose Actuals are: sales of $54.00 (18% of 300) COGS of $13.50 (25% of 54) Gross Profit of $40.50 (54 - 13.5) less SGA of $40.00 (fixed expense) Operating Income $ .50 (40.5 - 40) Shares out 100 EPS .005 (.5/100) Because there are fewer revenues to spread the SGA expense over in the actuals, the earnings appear to be dramatically below estimate of .1625. Wayde.

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