Re: Profit Rates -- From Michael Yates

["Charles Jannuzi" <jannuzi@xxxxxxxxxxxxxxxxxxxxxxxxx>]

> Gene writes:
>
> > How do you adjust for the change in "capital"
> > in telecom companies, before and after the
> > melt-down?  What's the denominator?
> >
> > World Com
> > Global Crossing
> >
> > etc.
> >
>

Sabri adds:

> Hey, it is easy.
>
> Look, let there be two times (Did I sound God-like
> here?), and label them as t(1) and t(2). Obviously,
> t(1) is when the observation period begins whereas
> t(2) is when the observation period ends. Define P(1),
> P(2) and CF(1,2) as usual. Then your rate of return
> over this observation period is:
>
> {P(2) +  CF(1,2) - P(1)}/P(1).
>
> It is evident that the denominator is P(1), is it not?
>
> And forget about these mortal things such as World Com,
> Global Crossing and the like.


I've seen some interesting news items that we can relate to this.

 First, that's why so many companies are now writing off 'goodwill'. It's
their polite way of saying, man did we screw up when we paid that much for
that stuff.

Second, Rubinstein of Carlyle
Group has come out and said, you know, a lot of private equity groups
holding telecoms and the like really haven't honestly re-evaluated the value
of their  holdings. Rubinstein, of course, would like them to get completely
honest here so his CG can continue to buy low and sell high. That CG can
sell at all some of the stuff they themselves have bought makes me think
more conspiratorially all the time (their big profit maker for this year
would seem to be IPOs for defense contractors and being able to unload
ITGroup).

Finally, NTT recently took a HUGE charge, and this would seem to go back to
them wading in and buying up in the telecoms bubble.

Charles Jannuzi