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.

Strategies & Market Trends : Guidance and Visibility -- Ignore unavailable to you. Want to Upgrade?

To: westpacific who wrote (80722)	11/6/2002 12:00:34 AM
From: westpacific	Read Replies (2) \| Respond to of 208838

A Belgium-based banker shared the following NTA of DOW "As of June 30th, 2002 and on the basis of each company's then most recent quarterly report, the 30 Dow Industrials components had a combined $3.3 trillion in liabilities compared to just $728 billion in book value. There was a combined $218 billion in goodwill within this book value figure, leaving just $510 billion in net tangible assets (which does not even subtract intangible assets other than goodwill from book value). In effect, the Dow's net tangible assets were then leveraged at a 6/1 ratio - a capital structure bearing far greater resemblance to a hedge fund than a prudently financed corporation. Of even greater concern, this figure was not just a function of the massive leverage employed by the Dow's financial components: just 10 of the Dow 30 had Liabilities/NTA of less than 3/1. Additionally, it should be noted that this figure did not account for any off-balance sheet liabilities. Risk assumed off of the balance sheet dwarves the aforementioned $3.3 trillion in liabilities in an unknowable but certainly immense fashion. The favorites of the much discussed "investor class" look far more like leveraged speculation concerns than investment vehicles. Their favorite diversified conglomerate, General Electric, held only $24 billion in NTA compared to $446 billion in liabilities. So. for every dollar invested in GE stock at the time, the shareholder had a paltry $.08 in NTA and a whopping $1.47 in liabilities. Efficient market theory is [indeed] necessary to explain such an investment arrangement. The stalwart of stability in the new economy, IBM, had $22 billion in NTA versus $60 billion in liabilities; a stunning figure for a technology services company with no aim for significant revenue expansion. Massive stock repurchases at 8-10 times book value have their costs. Everybody's favorite consumer products company, Procter & Gamble, actually had a negative NTA. Its shareholder's equity was composed of just $13 billion in goodwill, compared to $27 billion in liablilities. Perhaps Procter & Gamble can explain the damage caused by derivatives speculation to its less chastened peers."