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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (1392)	8/4/2000 6:38:52 PM
From: IRWIN JAMES FRANKEL	Read Replies (1) \| Respond to of 52153

Expensing or Capitalizing R&D This is very complex. What are the statements to be used for? Lending purposes, investment analysis or taxation. The use that you give the statements will suggest how they should be done. Accounting argues that we should write off R&D since its value is uncertain and this presentation is "conservative". Lenders like conservative balance sheets. Concepts of taxation are influenced by how we view R&D. If capitalization became the dominant accounting perspective - we could find amortization of R&D to be required. That would adversely impact cash flows. Investors have an interest in knowing how R&D has been spent and comparing the rewards to the expenditures. (And holding the management responsible for the results.) In "Quest for Value", G. Bennett Stewart, III, argues for capitalizing R&D - [could he be one of Peters' students <g>]. at pg 30 The ability to write off R&D tends to exaggerate ROA, ROC and ROE. These ideas tend to be foreign to those trained in accounting. Stewarts book is very enlightening to accountants and investors. A book worth reading. ij

To: Biomaven who wrote (1392)	8/4/2000 8:58:41 PM
From: Harold Engstrom	Respond to of 52153

Peter, thanks for your comments. It usually takes me a couple of days to digest a view that seems to be counterintuitive to me, so I'm going to reread these posts and try to transition to the dark side!

To: Biomaven who wrote (1392)	8/6/2000 6:11:55 AM
From: nigel bates	Respond to of 52153

"The current version does have the advantage of simplicity, conservatism and certainty. But the present system is still "wrong" in my view and makes it hard to compare PE ratios across companies and industries..." Development stage biotechs are such weird animals financially that no accounting rules are going to do much for the ability to compare with other industries. Given the potential for the abuse of capitalising R&D, I prefer 'simplicity'. The current system does acts as a warning to those new to the sector to take a long hard look before they buy. nig