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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Paul V. who wrote (58531)	3/16/2002 12:36:58 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Paul - Goodwill is the difference between price and what it's currently worth based on existing assets. Makes goodwill approximately the present value of future cash flows. Or "what we expect the enterprise to give us" that it doesn't already have. Why should this be so? Well, let's say someone like Buffett were to buy Cisco. How much would he pay? Oh, a bit less than he thinks he's going to get. Certainly not any more. What's he going to get? What's there now, plus those future cash flows. Price = PV FCF + what's there now, and also Price = Goodwill + what's there now Solve for Goodwill: Goodwill = PV FCF [Edit: I am, of course, assuming the company is "fairly" priced, where the definition of fair rests on economic principles. When the definition of "fair" is affected by the madness of crowds, well all bets are off. And this can go in either direction. The somewhat academic discussion with which mindmeld and I are entertaining each other is an objective assessment of "fair" from an economic perspective. From the market perspective, a fair price is whatever you can get for your slice today. Fair will have a different value on Monday. My somewhat simple minded view is that over time the market's version of "fair" and an economic version of "fair" should revolve around each other like the earth orbits the sun. Earth never plunging into the sun, but also never flying out into space. ] John.