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To: Quad Sevens who wrote (12567)	3/13/1998 9:38:00 AM
From: jan m.	Respond to of 31646

messages.yahoo.com read message 764

To: Quad Sevens who wrote (12567)	3/13/1998 9:55:00 AM
From: Mr Logic	Read Replies (4) \| Respond to of 31646

Wade, >>1. Year 2000 earnings should have P/E of 1, given 2. Non-y2k earnings calculated separately. These can take into account any benefit from investment of y2k earnings, increased company experience and increased exposure to potential clients.<< Is 1. still nonsense given 2. ? I don't see another way of accounting for these earnings. Assume it is 2001 and you are looking at the historical numbers for company XYZ, that had y2k and other earnings. 1. The direct y2k earnings (they fixed problems, and you don't fix any significant number of problems after 1/1/2000) totalled $10m. 2. Now, they have a business performing consulting services, with 12 month earnings of $100m. Their ongoing business is growing and is profitable, and they picked up some new clients and were able to make some good investments as a result of the cash they got from the y2k work. Their stock price sits at the 'correct' p/e for that ongoing business. The earnings in 1. are fully accounted for. There are no future earnings for y2k work. They earned $10m and that added $10m plus the effects in 2. to their market cap. So in effect the p/e of that $10m was 1. The non-cash benefits they got from the work also have an effect - probably increasing the growth rate of their underlying business, at least in the short term, so increasing the p/e of the underlying business. If the y2k work had earned $100m and the underlying business was earning $10m, it is nonsense to apply a p/e to the whole $110m when only $10m goes forward. Why do you think it is nonsense?