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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Reginald Middleton who wrote (8637)	6/24/1998 4:48:00 PM
From: Wizard	Read Replies (2) \| Respond to of 74651

>>Unless you are selling your stock to an accounting firm, it is best to adhere to the market value in lieu of the book value as described by accrual accounting measures. Whoever said that book value is what a company is worth? The difference between the market value and the book value is the premium/discount paid on the carrying value of the underlying assets. Companies with identical book values can have very different profitablity and growth characteristics. So company X's book value was Y on June 24, 1998 and the current market value is 3x that. Who's to say how far into the future investors are discounting? They could be discounting a book value of Z at the end of the this year or they could be discounting a book of ZZZ in 2010. The assumption that book = market value is not a part of accounting. >>Consider the difference in actual money available to equity investors as compared to the number on the net income to common line item. Yes, the number is in the cash flow statement in black and white. So what? The income statement assumes continuation of operations which necessitates depreciation and assumes you match expenses with revenues in the same period which means cash accounting doesn't = accrual accouting. I think these are good assumptions for what is a statement of operations. >>Do you know of any M&A banks who rely on earnings to guage the actual value of a company? I don't know any M&A banks that rely on any one metric. Opens 'em up to too much second guessing. I bet many M&A official analyses contain some information on what the merger value equates to on a multiple of earnings and what effect a merger would have on the acquirers earnings (accretive, dilutive etc...). It might not drive the decision but its in there. If you are buying a company, you likely treat it as you would any other part of your business, as a project. What is the cost of the project and what is the effect to the overall company's value? If you are a high-multiple company, you might consider buying lower multiple companies in the hopes that you keep your multiple and arbitrage the disparity into a higher stock price. 1.00 x 30x ==> 1.10 x 30x, +10% on accounting. Sure, you talk about how strategic the buy is and how the new company is that much stronger and the cost of capital just went down but in essence, you are just arbitraging the earnings. This happens, I guarantee you that.