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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: EACarl who wrote (40500)	10/1/2008 11:35:22 PM
From: Jacob Snyder	Respond to of 95865

OT GE (and on-topic: valuing companies) Thanks for your post, full of numbers (which should make Cary happy). Each industry requires a different yardstick, to measure valuation. I've read lots of posts, by smart people who put a lot of effort into assessing a company's valuation, but used a yardstick that, IMO, wasn't appropriate to that company. <Debt to equity ratio: 4.7> If GE were a pure financial company, this would be quite low. Some have debt/equity over 20. If GE were a pure manufacturing company, this ratio would be far too high, a big red warning flag for any potential investor. GE is a hybrid, half manufacturer and half financial. <If you use debt vs. tangible equity the ratio is 30.888 to 1!!!!!> I don't use book value, because it counts too many things that too often have no real value. I don't use tangible equity, because it doesn't count too many things that do have real value. So I ignore ratios using those measurements. <DEBT: 556 Billion> Yes, that's a worry. Not the size of the debt, but the necessity of re-financing, in the current credit freeze. Continuing access to credit is crucial to GE. Their whole business model collapses, if they lose their AAA credit rating. Therefore, that credit rating will be defended by all means available. <Cash:19 Billion> I thought this was adequate, but obviously management thought they needed more. This number will go up, with the Buffett buy-in, the dilutive stock offering, and the (hopefully temporary) end of stock buybacks. If Buffett exercises all his warrants, he'll end up owning 6% of GE. I'm not happy with the dilution, but I'm very happy that Buffett will now be watching the books and assessing the risks at GE. <GE, the ultimate blue chip? (weren't fannie, freddie and AIG etc?)> Buffett didn't invest in AIG, Lehman, WAMU, or any other company that has destroyed shareholder capital. Here's the yardstick that, IMO, is the most crucial in judging GE's viability today: the price of their credit default swaps: Earlier Wednesday, credit-default swaps for GE Capital hit a record high of 740 basis points, as anxiety swirled over GE Capital's ability to access the market for commercial paper. The price was quoted more recently at 540 basis points, in the wake of the capital-raising news, according to Phoenix Partners Group. That indicates that the annual cost of protecting a notional $10 million of GE bonds against default for five years is now $540,000, a slight decline from the $555,000 annual cost seen Tuesday, according to credit-default swap levels from credit information specialist CMA DataVision. online.wsj.com There is a GE thread at Subject 12134