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Technology Stocks : Dell Technologies Inc.
DELL 133.59-1.8%3:59 PM EST
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To: John Koligman who wrote (84932)12/11/1998 2:56:00 PM
From: Chuzzlewit  Read Replies (1) of 176387
 
John, the writeoffs are currently legal and according to accounting standards, legitimate (except for some companies suspected of overdoing it), but the problem is this: when you start writing off "in-process R&D", and "restructuring costs", and "merger-related costs" the intention is all too frequently to obscure the future "cost" of doing business. Since the "analyst" community focuses on the myth of operating earnings they ignore these "non-recurring" charges. In so doing the "cost" of doing business in the future is decreased.

That's one of the reasons why companies like to use a "pooling of interests" accounting procedure: they get avoid having that nasty recurring charge, "amortization of goodwill" appear on their income statements. But this is all accounting smoke and mirrors. None of this has any effect on corporate taxes or cash flow. So by changing or stretching the accounting treatment you can increase or decrease "earnings" substantially. But it has no effect on cash flow. That's why real analysts (who are known to eat quiche!) use cash flow to cut through all of the smoke and mirrors.

The irony is that in some cases the practice of writing some of these items off is tantamount to restating earnings (which sends shivers up and down the investment community), but when you call it a one-time charge it's okay.

Go figure.

TTFN,
CTC
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