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Strategies & Market Trends : Greenblatt's Little Book That Beats The Market -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (158)	4/6/2008 3:58:55 PM
From: jsabelko	Read Replies (1) \| Respond to of 218

Bruwin, Thanks for the quick and thorough reply. In your equation I'm assuming goodwill would be in fixed assets? Maybe not though as I thought most used total assets and you explicitly designated fixed asset + current assets. So I guess first question would be does fixed asset + current asset = total assets. To me yes but some may list goodwill and intangibles as "other assets" and then maybe not. If that's the case the question is answered as goodwill wouldn't be included in employed capital but then this wouldn't equal capital employed either so ..... If not and one uses total assets (which includes the good will) then as I understand the current goodwill treatment in the US there would be no affect of goodwill on the income statement unless a periodic review showed it as impaired. Therefore the goodwill would just remain on the balance sheet and in the denominator indefinitely and thereby make the ratio ebit/capital employed smaller and hence the company appear less efficient. Certainly the company at one point in time spent money (capital) for this goodwill. However, given this is not amortization anymore I'm not sure in all cases this historic efficiency with the goodwill included would necessarily reflect the efficiency of capital use going forward for a company. So to me if a company has high historic goodwill as a portion of total assets then this goodwill may "artificially " make the company look less efficient than it may be currently or going forward. Not critical to come to any real conclusion, I'm just curious how others calculate and use these ratios. Thanks for the discussion, joby