Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (21469)	8/29/2001 8:38:04 PM
From: Jacob Snyder	Respond to of 24042

OK, I'll go along with you, as far as balance sheets. When I study a company: I look at cash. I look at debt. I look carefully for liabilities, costs pushed out into the future, hidden risks (like unfunded pension liabilities, vendor financing, option overhang, etc.) But I don't look at Book. The reason is, Book Value is a grab-bag of heterogeneous pieces, and an uncertain fraction of those pieces have zero real value. It means that, when comparing one company's Book to another (even in the same industry), or when comparing a company's current status to previous trends, using Book Value ends up being an apples-to-oranges comparison. "Book Value" can be everything from cash to goodwill. It can be inventory (that may or may not have a market value), factories and equipment (that may or may not be obsolete), or various other assets (that may or may not be useful in generating future profits). Backing out the Goodwill from Book Value doesn't help much, as goodwill is not the only place where illusions of Value hide in Book Value. You have to back out everything but the Cash and Cash equivalents, in order to be making apples-to-apples comparisons. My favorite example of Book Value is the Penn Central Railroad, which went bankrupt with a huge amount of Book Value. That "Value" consisted of things like holes in mountains, which the Penn Central owned a lot of. Now, if those holes (railroad tunnels) had had well-maintained track through them, and trains (carrying paying cargo) running on the tracks, maybe their Book Value would have meant something. The real economic value of Penn Central's assets had been slowly eroding for many years, all the way down to a net value of zero, but the official Book Value hadn't reflected that erosion. Same thing with JDSU. When, exactly, did all the acquisitions JDSU made during the Bubble become (nearly) worthless? Did they become worthless when management announced they were taking all that Goodwill off the books? Or did it happen in the quarter when that accounting change got backdated to? Nope, it happened before that. The stock chart tells you when it happened. Or, maybe that Value never existed, it was just a temporary group illusion, the "madness of crowds" that happens during Bubbles.