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Microcap & Penny Stocks : DCI Telecommunications - DCTC Today -- Ignore unavailable to you. Want to Upgrade?

To: valuehunter who wrote (16234)	5/8/1999 12:13:00 PM
From: Colin Cody	Read Replies (1) \| Respond to of 19331

The penalty is a penalty in some respects, and not really a penalty in others. Here is an example of Pooling vrs Purchase based on a January 1st merger: Billy sells newspapers at "Billy's" on a corner in New York City. He nets $100,000. Bob sells newspapers at "Bob's" on the corner opposite Billy. He nets $100,000. They decide to work together - merge. They each figure that each corner is worth 10x earnings, or $1,000,000. ---------------------------------------- Pooling: BEFORE Billy's Balance Sheet -zero- (he has no inventory) Billy's Income Statement $100,000 earnings Bob's Balance Sheet -zero- (he has no inventory either) Bob's Income Statement $100,000 earnings AFTER POOLING Billy Bob's Balance Sheet -zero (they still have no inventory) Billy Bob's Income Statement $200,000 earnings Billy Bob's EBITDA $200,000 earnings --------------------------------- Now for purchase accounting: BEFORE Billy's Balance Sheet -zero- (he has no inventory) Billy's Income Statement $100,000 earnings Bob's Balance Sheet -zero- (he has no inventory either) Bob's Income Statement $100,000 earnings AFTER PURCHASE Billy Bob's Balance Sheet "Goodwill" $1,000,000 & "Stockholder's Equity" - $1,000,000 Billy Bob's Income Statement $200,000 earnings minus $50,000 goodwill amortization = $150,000 Billy Bob's EBITDA $200,000 earnings (this remains the same as with pooling) Wall Street looks to EBITDA, and Wall Street discounts Intangible items like Goodwill. --------------------------------------------- The earnings penalty of $50,000 is offset by a benefit - the increase in stockholder's equity. This is a game abused by many small companies. They overstate goodwill to make their balance sheets look bigger. That's way savvy Wall Street types discount the intangibles.