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Technology Stocks : TLAB info?
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To: JMD who wrote (2130)2/14/1998 2:45:00 PM
From: Chuzzlewit  Read Replies (1) of 7342
 
Mike, I was in total agreement with you up until the very end when you said "I wouldn't normally touch a company with significant goodwill on its balance sheet ...". I've always viewed goodwill as an accounting irrelevancy. The reason is that goodwill is one of those really peculiar accounting fictions that affect earnings (profit) but not cash flow. The IRS doesn't allow a deduction for goodwill, so there's obviously no tax benefit to the write-off. But there's also no down-side to it. I guess what I'm trying to say is that the real issue in evaluating a company is the estimation of future cash flows, and inclusion of non-cash charges from the amortization of goodwill and other intangibles along with depreciation serves only to obscure the financial strength of a business.

Regards,

Paul

[For those of you who are not financially inclined, "goodwill" is the difference between what a company pays to acquire another company and the fair market value (FMV) of the acquired company's assets - (FMV) of its liabilities. Goodwill is recognized as an asset that is amortized (hence the annual charge against earnings), and is the consequence of a combination resulting from a purchase. When companies merge using a "pooling of interests" the balance sheets are simply added, and no goodwill is recognized. From an accounting point of view the companies behave as if they had always been one.]
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