Addi said:
Do not be confused with the numbers. If you are an investor you should only be concerned with percentage and not the actual number of $s. As you state MSFT has 9 billion in cash and generated only 3.2 billion. That is about 30%. It is indeed outstanding. Sun on the other hand had 1 billion in cash and generated 2.5 billion. That is 250%! Allow me to ask you which is greater 30% or 250%?
And then he said: I hope that helps clearing up your state of mind.
Addi, since you don't know me or my background, I resent the increasingly patronizing tone of your remarks to me. I have gone out of my way NOT to charecterize much of what you say as flawed from many different aspects, not the least being the constructs of your sentences. You don't write in a clear and foucused manner and I'm sure there are those here who would agree with me. But I try my best to get through your postings and respect your enthusiasm.
Having said that, let me address your point, which is FATALLY flawed, as I pointed out the first time you made it, but as is your inclination, was promptly ignored, by you and the rest of your flock of worshippers. As I stated before, companies are NEVER judged by a "return on cash" ratio. They are judged by many things such as ROA, ROE, RO sales, RO gross margin, RO total investment but never ever ever never ever RO cash. But you see, a return on cash comparison is EXACTLY what you are showing here. Can you see the flaw in your logic? The flaw is that MICROSOFT could pay the $9b in cash on their balance sheet to the shareholders as a dividend in Q1 and STILL PRODUCE the same level of earnings or higher in Q2 that they did when they had the $9b in cash. The reason for this: The cash is not needed to produce the earnings. The BUSINESS produces the earnings. The cash is used to make future INVESTMENTS. That is why you don't ever make Return on Cash calculations. Furthermore, use any other ratio that analysts use and you will find that msft is a far more profitable and faster growing enterprise than sunw. In fact, msft was in the top ten of Fortune 500 companies for three important tests of profitabilty in 1996, Return of Assets, Return on Sales, and Return on Equity. Sunw was not on any of the three lists. That means they dindn't perform as well as msft in those three cruical tests of profitability. Needless to say, Fortune does not use your return on cash calculation. Use any ratio other than RO cash, which is a useless ratio becasue it presents NO useful information about the quality of the business, and you will see a clear edge for msft. In essence, your calculation PUNISHES msft for holding a lot of cash, which is conservative!!!
Addi, now I hope you understand why I really resented your PARTICULAR criticism, not criticism in general. Your naive statement combined with your patronizing tone must be filed under the category of "you don't know what you don't know." It s frustrating to deal with.
And lastly, I would like to think that some of your freinds on this thread will have the courage and the intellectual honesty to come forward and gentley tell you that you are wrong on this one, or at least attempt to support your specious return on cash argument. And lastly, you should be very careful when you live in a glass house and begin to throw stones. |
