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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (5220)	10/31/1998 1:00:00 AM
From: James Clarke	Read Replies (1) \| Respond to of 78535

Not at all. There are plenty of industrial and manufacturing companies with franshise value well in excess of book. Caterpillar, Deere, Dover, Danaher, Intel... But that wasn't my argument. If you believe a company overpaid for an acquisition, then by all means zero out the goodwill on the balance sheet. But that has nothing to do with the income statement, and has nothing to do with my argument. If the company is earning a dollar in cash, I'll value that dollar the same way regardless of its history. I am not talking about the balance sheet, I am talking about cash flow, which is how I value companies. Goodwill amortization is a non-cash expense. So is depreciation. What I am arguing is that goodwill amortization is a non-economic expense as well. Depreciation is a real expense because depreciation of assets usually has to be replaced by capital expenditures (cash). Of course ABC's (to go back to my old example) franchise will depreciate without advertising and other cash expenses. But those are already on the income statement. Goodwill amortization is double-counting that expense. Jim