To: Mike Buckley who wrote (25817 ) 6/4/2000 12:14:00 PM From: Bruce Brown Respond to
If you wouldn't make me listen to Wagner, no premium would be required. <ggg>boards.fool.com erothberg from the Fool and here is what he says:I believe the analysis in Otter's article is flawed for the simple reason that P/E, in new economy companies as compared to old economy companies is a flawed measure of value. The reason for this is that old economy companies have inflated earnings compared to new economy companies by virtue of their ability to amortize capital expenditures. In a new economy company the real capital expenditures are research and development. These are expenses immediately rather than amortized. If you amortize these expenses on a three to five year basis and add back 66% to 80% spent on these items to earnings, the P/Es begin to look much more reasonable. Moreover, there is an added tax benefit. Since the IRS allows R&D expenses to be deducted currently, the new economy companies will pay less taxes, thereby adding more cash to the bottom line for investors. ten times the profits as GM with a P/E of 48.94? Or Microsoft, a company with profits 14 times that of GM with a P/E of 39.9? Hmmmmmmmm......let me get back to you on that GM recommendation. Don't call me, I'll call you. By the way, I drive a Honda.
