How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 479.20

+0.2%

Jan 9 9:30 AM EST

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To: Neil Booth who wrote (3060)	9/15/1997 10:52:00 AM
From: Joan Osland Graffius	of 74651

Hi Neil, >>How do you reconcile your claims of a sub-50 PE, with Yahoo's listing of 52.45 at a price of 135 3/8? I am going to attempt to answer your question. Each quarter Microsoft does not report some revenues and the profit associated with this revenue. This revenue is at least 10% of all software sales. Microsoft then adds this profit to the liabilities side of the balance sheet. Now this "cash" is supposedly used for support (hotline and other things!) This account, last time I looked had a couple of billion dollars of cash and should be more than that today. I have not been able to figure out if the CFO charges some upgrade activity to this account or not. Now this cash generates at minimum short term interest income. Also I have been watching this account and it is growing--i.e. not being used up. The CFO has threatened to hide more of this profit during the next quarter, why I don't know, but he must think he can control his reported growth and keep his stock price from going through the roof. There was a big fight with the accounting standards organization on this practice and Microsoft won. Also when evaluating other software companies you should look at the liabilities side of the balance sheet to find this cash. I use this as part of my evaluation of software companies to make sure they are successfully generating revenues and have the luxury to "hide" cash and make income on cash other than the cash stated on the assets side of the balance sheet. You, can look at Microsofts 10K or Q and decide what their PE is, but I guarantee you it is not in the 50's if you want to compare apples to apples with non-software companies. Joan

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