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To: Jeff Mills who wrote (31526)	3/1/1998 1:00:00 PM
From: Chuzzlewit	Respond to of 176387

Jeff, I'll stand by what I said (PSR is useless) because it fails on two counts. First, it has nothing to do with profitability (or more accurately, free cash flow). The reason that companies like WDC sank was the emergence of a tremendous over-capacity in the dd sector which forced participants to essentially dump inventories. Second, even if PSR could somehow be related to free cash generating ability of a company, it is static because it ignores growth. It's like saying that you would prefer to invest in a company with a P/E of 15 rather than in another with a P/E of 30. If all other things were equal, the one trading at the higher P/E would be preferable if it had growth expectations more than double the one at the lower P/E. Different businesses segments have different gross margins, and so it's a mistake to compare PSRs across industry segments. Supermarkets have very low margins and very high inventory turns which accounts for low PSRs. Jewelry stores have very high margins and very low inventory turns which accounts for very low PSR. These are structural characteristics of these businesses. Regards, Paul