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Subject:  Re: Excess Cash/Enterprising Interest Date:  11/22/2008  7:26 PM
Author:  hheiserman Number:  1598 of 1817

Dot -

There are 10x as many interesting companies/stocks today vs. a year ago, due to the stock market implosion. What is "hard" is finding the time to study all these companies.

1) R&D is the actual money spent that year, not the adjusted one we get by depreciating it, correct?

actual $$$

2) You gave formulas in several posts, some of them include tax in the costs and some don't.
a) Do I include tax in costs?
b) Which tax number? Defensive, enterprising or the number directly from the income statement?

Yes, unless you want management to go to jail. Defensive. But if GAAP or the cash tax figure at the bottom of the cash flow statement. We do not need to be precisely correct here.

3) Once you have the costs, I calculate excess cash as
(cash and equivalents from balance sheet) - costs/4. Or should I be using total revenues: (total revenues) - costs/4?

former. remember, we are assuming a firm needs enough cash to cover the next three months of operating expenses and investment outlays. now this is just a generalization. maybe, given the current credit freeze-up, we should use four months, six months, or even more.

I end up with a negative number for excess cash - how do you handle this situation? I've thought to:

a) Set excess cash to zero.
b) Subtract it? This would increase Gross Enterprising Capital, because it's a negative number?
c) Something else?

If a company has $10 million in cash and you estimate operating cash at $13 million, then they do not have any excess cash.

Happy to answer any more questions you have. If you want to do a FAQ, we can post it on the site. Also, I'm sure the author will acknowledge your contribution if he writes an improved version of the first edition.

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