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Strategies & Market Trends : Value Investing

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To: James Clarke who wrote (3234)	2/15/1998 12:35:00 AM
From: jeffbas	Read Replies (2) of 78608

Trying to justify valuation for Merck by saying how much lower its P/E would be if you capitalized R&D is, in my opinion, just as questionable as capitalizing the huge ad expenditures for a consumer products franchise like Coke to justify its P/E. Both are essential expenditures to the respective companies survival. The former creates hidden value on the balance sheet in terms of research in progress or value of patents and the latter brand value. Furthermore, if these expenditures were constant (which they are probably not) restating their historical records to capitalize them would increase assets but have no effect on current earnings - because the depreciation charges related to all past years' capitalized expenses would just equal this year's current expense.

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