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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: abbigail who wrote (12023)	1/4/2000 3:32:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 21876

Abbigail, I must respectfully disagree with you. Earnings are an accounting fiction and change wildly with changing assumptions (like depreciation periods) and accounting principles (like pooling vs. purchase accounting). Cash flow is a much more reliable indicator of economic profit. I don't care about dividends (which, by the way, has no affect on operating cash flow). When I see decreasing cash flow from operations in the face of increasing earnings I get nervous. Sometimes it is easily explained, and nothing to worry about, as in the case of a sudden spurt in orders which leads to big increases in A/R and inventories. But if that trend is prolonged it is generally due to slowing payments from customers (and one should ask why), and/or increasing inventory levels (and again, one should ask why). This is not a question of faith, but rather of analysis and concern derived from that analysis. I believe that anyone who invests solely on the basis of the bottom line is in for some very rude shocks. You rightly asked about capacities, asset utilization rates, order lead times, long term contract/inventory delivery times, machinery & equipment need projections, and these are the very issues that cash flow analysis addresses, because the focus is on metrics such as inventory turnover, capital expenditures, and receivables turnover (which are never considered in profitability analysis). Don't you think it's important to explain the large disparity between operating earnings and operating cash flow? TTFN, CTC