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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Lee Lichterman III who wrote (38367)	7/24/2002 10:25:33 PM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 52237

. IN other words, I dont care how many times he turns inventory, if it is truly more effecient, then the earnings part should reflect that. If the earnings are the same but inventory turns are higher, then it is just trying to put rose colored glasses on everyone and sell a new pardigm story in a new wrapper. This is true if you include in "the earnings part"- cash generated from st investments, and the cash picture in general. A lot of investors (mostly on the bearish side) say just what your post says, that they want the numbers to speak for themselves when evaluating the new business models, but then refuse to look at cash or income generated from investments, which is a key differentiator to the model. L

To: Lee Lichterman III who wrote (38367)	7/24/2002 10:42:29 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 52237

Lee, the P/E ratio is not defined from thin air it has to do with the return on investment and real life business valuation. If 25 years ago to establish a manufacturing facility with an output of 1000 wigets per month you needed $500,000 for machinery and equipment and $500,000 for inventory including raw material WIP and finished goods your investment was $1,000,000. At the time inflation was around 4% and treasury paid you 7.5% from there you have the P/E of 15. Now with just in time inventory at double the inventory turn you need only $250,000 in inventory and $500,000 for equipment or a total of $750,000. Inflation is 2% and treasury pays you 5% so you should do the math to how much P/E it translates. 1,000,000/750,000 x 15/5x7.5 = P/E 30. the net income on your investment is the same as before when you needed $1,000,000 and due to lower inflation your fiat money buying power depreciate less. It is a simplistic explanation but true