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This thread seeks out stocks whose PEs are understated because the company's goodwill is amortized. Here is an article from Barron's (Oct 25, 1999) which highlights new changes in accounting conventions.
"Cash Ain't Trash"
A new earnings measure could give these stocks a boost
By Andrew Bary
The recent profit news from Intel marked a milestone in financial reporting -- not so much for what the giant chip maker said as for how it said it. With its third-quarter report, Intel became the most prominent company to emphasize so-called cash earnings over a standard calculation of profits. Cash earnings are derived by adding goodwill amortization back to reported earnings. And many accounting experts believe they offer a truer picture of a company's profit power than do current reported earnings.
"For a company of Intel's stature to take this step helps legitimize the technique for companies considering early adoption of cash earnings," says Bob Willens, accounting expert at Lehman Brothers. Willens believes that cash earnings will become the key measure of financial performance for many companies and that price-earnings ratios may have to be reevaluated. Some institutional investors already are drawing up lists of companies that have a big spread between reported profits and cash earnings, in an effort to capitalize on a potential revaluation.
Willens and other advocates of cash earnings say that this is no accounting gimmck. They argue that cash earnings better reflect a company's financial health because goodwill (product masters) amortization is a non-cash charge resulting from an accounting convention, not an impairment of a company's assets.
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