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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Elmo Gregory who wrote (16985)9/5/1997 11:45:00 PM
From: M Goodson   of 42771
 
Hi Elmo,

I've done a little homework on this company and I've noticed that while it has posted losses the company's cash flow from operations has remained positive. This tells me that the company was still making good money through its regular business activities throughout the second quarter. If this trend of positive cash flows from operations continued throughout the third quarter then I think we all as shareholders have good reason to doubt the severity of posted losses.

An accounting entry that I have yet to see addressed is that of depreciation & amortization. For the first quarter of this year it amounted to $23.816 m. By the end of the second quarter, it was $46.266 m. If an additional $20 m was accumulated over the third quarter, the total accumulated depreciation would amount to $66.266 m. On a per share after-tax basis for the nine months ending on July 31, 1997, this accounts for ~$.12 of the $.25 loss. Assuming that, at least, $20m was depreciated during the third quarter, forty-eight percent of these losses can be attributed solely to this paper entry of accumulated depreciation.

What's your take on this? It seems to me that if an expense does not affect cash holdings it does not matter. It's the sort of expense upon which one can smile.

The picture looks even better when one considers this business of depreciation along with the $.10 per share after-tax loss resulting from the restructuring charge. By doing so one accounts for $.22 of the $.25 per share loss amounting to eighty-eight percent of the company's loss.
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