Afterabigbath earnings s time

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Unformatted text preview: e VALUATION VALUATION y PATTERN OF EARNINGS, cont'd.. – The “We never pay taxes syndrome” Earnings + ­ Time Congratulations! Now how are we going to value your wonderful company? VALUATION VALUATION y PATTERN OF EARNINGS, con’td. – After a “BIG BATH” Earnings $’s + ­ Time If there is adequate explanation, this “Big Bath” may not hurt the multiple of this company much. VALUATION VALUATION PATTERN OF EARNINGS, con’td. The “Hockey Stick” pattern: y Earnings $’s Time VALUATION VALUATION When you see a “Hockey Stick” pattern of earnings, what do you look for? y Answer: A similar pattern of Inventory balances changes from the Balance Sheet. (Remember,”The higher the Ending Inventory, the higher the Gross Profit.” The company that is for sale suddenly “found” inventory that had been written off over the years. y VALUATION VALUATION y PATTERN OF EARNINGS, cont'd.. – The IDEAL pattern: Earnings $’s Here you don’t have to be clairvoyant to see where this company’s earnings are going Time VALUATION VALUATION y EARNINGS PER SHARE. (Public companies only.) This idea here is to make the number of shares outstanding be such that you get an “appropriate” stock price in general. If you have so many shares outstanding that your earnings are pennies per share, then your stock will be a “penny stock”. This may give you a high multiple, but there probably will not be an...
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This note was uploaded on 11/27/2013 for the course FBE 437 taught by Professor Bristow during the Fall '07 term at USC.

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