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To: gdichaz who wrote (50225)	2/7/2002 12:00:35 AM
From: Pirah Naman	Read Replies (1) \| Respond to of 54805

Cha2: And while it may be that a projection of cash flow is technologically blind, I doubt the efficacy of any such approach. It is easiest to teach the general methods using a "blind" growth pattern. What you are calling blind is also sometimes useful for sanity checks - "how fast would the company have to grow to justify this price?" or "if the company only matched the overall economy, what then?" But it is certainly not adequate to truly evaluate a company. To project forward would seem to require a good understanding of the technological basis for the company's future, where the company stands in its industry and what its strengths are in IP in a case such as Qualcomm. Then a cash flow analysis would be a sensible approach - with a clear set of assumptions laid out. Exactly - very well stated. This is where, surprisingly, a glance in the rearview mirror is handy. We can look at what level of expenses might be fixed and which might be somewhat volume independent. e.g., if the company needs a new fab every three years for chip production, that is different than paperwork for royalties. And what you have pointed out is possibly the greatest benefit of doing a good FCF projection - it gets us to look closely at how the business operates, and to come up with that clear set of assumptions. The value of coming up with a clear set of assumptions may be greater than that of the value estimation that results. - Pirah