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Biotech / Medical : SANGUINE CORP. (SGNC)

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To: wonk who wrote (2528)	7/7/1998 9:37:00 AM
From: dwlima	Read Replies (1) of 5402

"For years, the finance literature suggested that there is no acceptable way to map accounting numbers into an estimate of firm value, without first converting the accounting numbers into cash flows. It was pointed out that accounting numbers do not accurately reflect the timing of cash inflows and the investments needed to generate those cash flows (on a side note: see the recent businessweek article on Mr. Chainsaw at Sunbeam). Also, accounting numbers are subject to manipulation and influenced by method choices that should not affect firm value. More RECENTLY, some in both practicing and academic communities have concluded that it is possible to arrive at firm value through accounting numbers, so long as the proper technique is used. IN PRINCIPLE, THE ACCOUNTING-BASED VALUATION SHOULD DELIVER THE SAME ESTIMATE AS DCF. Ok, as for credentials. The book "Business Analysis & Valuation" was written by Dr. Krishna Palepu, Dr. Bernard and Dr Healy. Palepu is a business professor at Harvard. Bernard is the Price Waterhouse Professor of Accounting at the University of Michigan and Healy chairs a seat at MIT. The book was compiled by Ms. Linda Vincent- my valuation professor at the University of Chicago. She failed to list the number of valuations and bios of the authors - but i would imagine they are fairly credible. The interesting thing is that your only proof that discounted earnings is the best way to do a valuation of biotech companies rests completely on what the industry is doing. I have the advantage of questioning things that i come across. It has made me wiser as i uncover the root causes of why things are done a certain way..it also helps me see that some ways are not that good..just there because people are too lazy to change. Btw, you guys are too late.look for a nice price increase this week. I have that loving feeling. dwlima

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