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To: jbe who wrote (22182)	5/17/1998 12:09:00 AM
From: Chuzzlewit	Read Replies (2) \| Respond to of 95453

Okay jbe, now I know what they're talking about. But first, to get over your nausea I suggest you stop reading Sartre! Now to the business at hand -- enterprise value. Essentially, this is the value of the stock with debt cash stripped away. This is something that is important in working out the mechanics of mergers and acquisitions, but of questionable use for anything else (at least to me). Unless you are a corporate raider or an M&A specialist I think it's a waste of time messing with it. The reason I believe that is that valuation models simply don't work worth a damn! Regardless of what you put in the numerator and put in the denominator these things don't work. "Why?" you ask. Because the models are incapable of incorporating multiperiod growth in cash flows, properly estimated risk-adjustments for discount rates, and cash inflows into the equity markets (I don't think I have ever seen a model even vaguely touching that last issue). So here, once again is the Chuzzlewit method of investing: 1. Find companies with good, long-term earnings growth stories; 2. Check to make sure that they have strong balance sheets and decent looking income statements; 3. Do the financial analysis on the company so that you feel comfortable in understanding how it generates cash; 4. Make sure that the company is in a good free cash flow situation (as I've previously defined free cash flow -- with calculated sinking funds) 5. Check to make sure that valuations have some semblance of reality. Check the ratio of the stock's PEG to the overall market's PEG (this is one of those double relativistic kinds of measures -- in other word lets call it a standardized PEG); 6. Sell only when: a. you need the cash; or b. the underlying long-term growth story is compromised. In other words, you sell criterion is based on company fundamentals, not the vicissitudes of the stock market. You now know everything I know. ASND has not been an outrageous winner for me. I must have mistyped! It has been very ho-hum only about a 16% gain. That's the worst stock in my current portfolio. I didn't do well with PAIR either, but I got out with a 10% loss when I felt that prospects didn't look good long term. On the other hand, I bought TYC in 1986 for around $5 and its now around $54 the last time I looked. So that has given me a 24% per annum yield (plus a small dividend), and I see no reason to sell after 11 years! BTW, my favorite explanation is still the Fell syndrome. TTFN, CTC

To: jbe who wrote (22182)	5/17/1998 12:32:00 PM
From: dougjn	Respond to of 95453

JBE, enterprise value is most important when comparing leading companies with widely disperate amounts of debt. In many tech fields, all of the leaders have little or no debt. E.g. most leading software companies. In those cases, enterprise value, as compared with say a price to sales ratio, doesn't add much. In some other areas, such as telecom services companies, there are some pretty big differences in amounts of debt. Which in any event tend to be large. (And for good reason. Those industries have relatively steady cash flows, and tend to require huge up front equipment investments upon which revenues are then earned for a number of years.) Doug