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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: Robert Scott Diver who wrote (7490)	3/8/2002 9:27:45 AM
From: Joan Osland Graffius	Read Replies (1) \| Respond to of 8218

Robert, >>the market cares mostly about earnings and share price, During bubbles your statement is correct. IMO, there will come a time when we will get back to investing and quit speculating. Good luck, Joan

To: Robert Scott Diver who wrote (7490)	3/8/2002 11:22:06 PM
From: Seeker2007	Read Replies (1) \| Respond to of 8218

As a very simple example to support Scott's point of view: Some background: 1) IBM has been repurchasing approx $7 bn per year of IBM stock for >5 years (I believe since 1993 or 1994). 2) IBM's core debt is not up or substantial Assume IBM shareholder equity is $100 billion of which $50 billion is net cash on the balance sheet and $50 billion is property, plant, equipment, goodwill. At ~2 billion shares outstanding IBM's shareholder equity per share is $50 If IBM were to use $25 billion for share repurchases and the repurchases were executed at $100 per share Net assets now = $75 billion Shares outstanding = 2 - 25/0.1/1000 = 1.75 bn (250 million shares were repurchases) shareholder equity = $75/1.75 = $42.8 Therefore the simple act of share repurchases at greater than book value per share has reduced shareholder equity. The famed Warren Buffet has written about this and most companies in which Berkshire Hathaway holds stock repurchase their shares at prices far higher than book, e.g. Coca Cola. The net effects are (1) Use of surplus cash to boost EPS (2) A higher return on equity (same earnings, lower equity) (3) Corollary to (1) - reward shareholders. --------- I have not looked at the balance sheet of MSFT but I am willing to bet that (1) most of book value for MSFT is cash (2) MSFT stock price > book (3) MSFT repurchases stock ==> effect of stock repurchases = lowering of shareholder equity SO WHAT The shareholder equity argument exposes the proponents as clueless, or perhaps malicious if they are "clued". Those persons and those who make non-substantiated generic accusations should be ignored.