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Technology Stocks : RATIONAL SOFTWARE- BUY OR HOLD -- Ignore unavailable to you. Want to Upgrade?

To: Randy Ellingson who wrote (2685)	10/17/1998 11:57:00 AM
From: Randy Ellingson	Read Replies (1) \| Respond to of 3115

On deferred revenue: As of this most recent earnings report, Rational had deferred revenue of $58M. Is it possible to convert this to a deferred earnings number as follows? I'd say that processing deferred revenue excludes most if not virtually all costs associated with generating that revenue (or is this simply wrong?). If so, then earnings generated by processing this revenue are at the gross margin, let's say 80%. After a 34% tax rate, I get deferred earnings of about $0.36. I have a feeling though that costs of revenue are only included when the revenue is accounted for... In which case we'd be going at the ~13% net margin rate. This would yield deferred earnings of something more like $0.06, much more believable unfortunately. Who has the answers here? Randy