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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Earlie who wrote (71357)	12/3/1999 11:22:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 132070

Earlie, Another reality check that we have found useful with respect to Cisco, is to subtract the "purchased earnings" (acquisitions) from the reported earnings each quarter to get some sense of internal growth. Yes, that's a very important point. An alternative approach is to look at the incremental earnings in order to strip out the restatement due to pooling of interest accounting. You may be interested in how I do it: I am interested in the free cash flow generated by a company. Assuming that the cash numbers aren't fraudulent, I first calculate operating EBITDA (to exclude non-operational earnings like gain on the sale of securities and interest). From that, I adjust for changes in current non-cash balance sheet items; increases in asset accounts decrease cash and increases in liability accounts increase cash. Next, I subtract the cash paid for acquisitions and property, plant and equipment. This gives me free cash flow. But the problem is that companies have acquired other companies using pooling transactions. Therefore, in order to avoid the distortions of pooling accounting I use historical 10-Ks and 10-Qs to determine the FCF (so that the income statements and balance sheets have not been restated) and I use the historical shares outstanding (not the restated ones) to avoid the dilution. Now I am in a position to measure the real historical growth in FCF. The problem with this approach is the potential overhang due to employee stock options grants that have not vested. They are so complicated to calculate that I have pretty much given up and wave my hands a lot. TTFN, CTC