Re: Valuation Question
From the YHOO most recent 10-K May, 2002.
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Cash and Cash Equivalents, Short and Long-Term Investments. The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers. All highly liquid investments with an original maturity of three months or less are considered cash equivalents. Investments with maturities of less than twelve months from the balance sheet date are considered short-term investments. Investments with maturities greater than twelve months from the balance sheet date are considered long-term investments.
The Company's marketable securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity. Realized gains or losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are reported in other income or loss. As of December 31, 2001 and 2000, the Company recorded unrealized gains on its marketable debt and equity securities of approximately $32.1 million and $49.8 million net of tax of $12.8 million and $19.9 million, respectively.
The Company has investments in equity instruments of privately-held companies. These investments are included in other long-term assets and are generally accounted for under the cost method as the Company does not have the ability to exercise significant influence over operations. The Company monitors its investments for impairment by considering current factors including economic environment, market conditions and operational performance and other specific factors relating to the business underlying the investment, and records reductions in carrying values when necessary.
The Company accounts for derivatives under Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. During 2001, the Company recorded in other income, gains on derivatives of approximately $4.6 million, related to equity instruments of other companies.
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Relevant Balance Sheet line items from YHOO 10-K
(in thousands, except par value)
Cash and cash equivalents $ 372,632
Short-term investments in marketable securities 553,795
Long-term investments in marketable securities 580,418
Restricted long-term investments 258,662
To wit, the following statement relates to balance sheet items:
Statement
The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers. All highly liquid investments with an original maturity of three months or less are considered cash equivalents. Investments with maturities of less than twelve months from the balance sheet date are considered short-term investments. Investments with maturities greater than twelve months from the balance sheet date are considered long-term investments.
The Company's marketable securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity. Realized gains or losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are reported in other income or loss. As of December 31, 2001 and 2000, the Company recorded unrealized gains on its marketable debt and equity securities of approximately $32.1 million and $49.8 million net of tax of $12.8 million and $19.9 million, respectively.
Related Balance Sheet Items
Cash and cash equivalents $ 372,632
Short-term investments in marketable securities 553,795
Long-term investments in marketable securities 580,418
Statement
The Company has investments in equity instruments of privately-held companies. These investments are included in other long-term assets and are generally accounted for under the cost method as the Company does not have the ability to exercise significant influence over operations. The Company monitors its investments for impairment by considering current factors including economic environment, market conditions and operational performance and other specific factors relating to the business underlying the investment, and records reductions in carrying values when necessary.
Related Balance Sheet Items
Restricted long-term investments 258,662
Now for CSCO
Getting your data from Yahoo will make a liar out of you every time. I went to the SEC filings to get the data for both YHOO and CSCO. The relevant CSCO Balance Sheet items from most recent 10-K filing in September of 2002:
(in millions)
Cash and cash equivalents $ 9,484
Short-term investments 3,172
Investments 8,800
7. Investments
July 27, 2002 Fair Value
U.S. government notes and bonds $ 4,467
Corporate notes and bonds 6,938
Corporate equity securities 567
Total $ 11,972
Reported as:
Short-term investments $ 3,172
Investments 8,800
Total $ 11,972
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As you can see a very small portion of the CSCO "Investments" are allocated to equity securities. The Yahoo method of reporting is the more common method IMO. Also a statement from the YHOO 10-K fits a lot of companies in tech land. That statement reads as:
The Company invests its excess cash in debt instruments of the U.S. Government and its agencies
Many tech companies have invested their "excess cash" (and there is lots of it compared to their market caps) in a similar manner. It should also be noted that CSCO and YHOO have zero long term debt. I'm not pounding the table on these companies but IMO when valueing many of these tech companies, a significant part of the market cap is comprised of assets related to excess cash and the PE should be evaluated in light of this. Check out the balance sheets would be my message.
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