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Non-Tech : Conseco Insurance (CNO) -- Ignore unavailable to you. Want to Upgrade?

To: StaggerLee who wrote (1095)	4/9/2000 5:43:00 PM
From: Robert T. Quasius	Respond to of 4155

Just to clarify, goodwill is an accounting term that refers to the excess over book that an acquirer pays in buying another company. Goodwill is amortized over a period of years until fully amortized. It is quite common for acquirers to pay many times book value for an acquisition, so companies like CNC that have had a long string of acquisitions often carry a lot of goodwill, and hence book value far exceeds tangible book value. Tangible book value is the book value less goodwill. I pay a lot more attention to cash flow from operations, and especially free cash flow. Strong free cash flow indicates a company has a lot of free cash to pay increased dividends, buy back stock, pay down debt, or make acquisitions.

To: StaggerLee who wrote (1095)	4/9/2000 5:50:00 PM
From: StaggerLee	Read Replies (1) \| Respond to of 4155

Here's an example of why "tangible net worth" is a meaningless concept: Microsoft has tangible net worth of $6.68/share and 5.2 billion shares outstanding. One day, in an effort to evade the Justice Department, Microsoft buys Coca Cola for $114 billion in cash! Since it's not a stock deal, MSFT uses purchase accounting and records $10 billion for Coke's tangible net assets and $104 billion for GOODWILL. Suddenly there is $20/share of goodwill on MSFT's books. As a result of paying fair value for Coke, MSFT's "tangible net worth" is now negative $13/share! And to add to the absurdity, MSFT's earnings for the next 20 years are depleted by $.25 every quarter to write off this goodwill balance to expense -- but this has no impact whatsoever on tangible net worth. Tangible net worth will be impacted by this acquisition forever. I can only imagine the headlines in Barron's.