Is Acme Packet's Growth for Real?

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Acme Packet (Nasdaq: APKT  ) carries $12.4 million of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be the case with Acme Packet?

Before we answer that, let's look at what could go wrong.

AOL blows up
In early 2002, AOL Time Warner was trading for $66.27 per share.

It had $209 billion of assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how Acme Packet holds up using his two metrics.

Intangible assets ratio
This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

Acme Packet has an intangible assets ratio of 3%.

This is well below Heiserman's threshold, and a sign that any growth you see with the company is probably organic. But we're not through; let's also take a look at tangible book value.

Tangible book value
Tangible book value is simply what remains after subtracting goodwill and other intangibles from shareholders' equity (also known as book value). If this is not a positive value, Heiserman advises you to avoid the company because it may "lack the balance sheet muscle to protect [itself] in a recession or from better-financed competitors."

Acme Packet's tangible book value is $412 million, so no yellow flags here.

Foolish bottom line
To recap, here are Acme Packet's numbers, as well as a bonus look at a few other companies in its industry:

Source: S&P Capital IQ.

Acme Packet appears to be in good shape in terms of the intangible assets ratio and tangible book value. You can never base an entire investment thesis on one or two metrics, but there are no yellow flags here. If any companies you're researching do fail one of these checks, make sure you understand the business model and management's objectives. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

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Source: http://www.fool.com/investing/general/2011/12/05/is-acme-packets-growth-for-real.aspx

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Here's How Banks Will Lie To The Public When They Announce Their Bonus Figures This Year


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The idea that banks have to talk about bonuses with any specificity to anyone other than individual employees or in generalities to anyone other than a small group of shareholders is a rather recent one.

Only since the peak of the most recent boom has the size and structure of bonuses been of widespread interest.

And it was only during and after the financial crisis that this interest turned from detached wonder to focused criticism.

So it is not surprising that when banks talk about bonuses they tend to use a relatively small number of tropes to deflect attention away from just how much money they are paying their employees. One topic banks love to talk about, and reporters love to write about, is stock. There's been a flurry of high-profile coverage recently abut employees getting paid in equity.

It is hard to find a public statement from a bank on bonuses that does not refer in some way or another to equity compensation. But when you hear things like "most bonuses will include an equity component" or "we have created a long-term incentive by paying bonuses in stock", you should take those statements at face value.

Even if most bonuses do include some equity, they key issue is how much. It is now common practice at banks for the senior-most executives to be compensated largely if not almost exclusively in stock, but what about more junior employees? Or even those just below the cut-off to be considered listed corporate officers whose compensation packages are required to be disclosed? These employees often receive a token number of shares, making up a tiny portion of overall compensation, but allowing the bank to include the employee as one who received some form of compensation in stock. We've heard of employees getting as few as 9 shares. And yet those employees still get counted as having received a portion of their bonus in equity.

Take this into account when you hear that some astronomically high percentage of employees were paid in stock.

The second major item to pay attention to is vesting period, because it's the only way to tell precisely how long-term, if at all, the stock that's been given actually is. In terms of the duration of the incentive, stock with no vesting period or a ridiculously short one of something like 30 days functions identically to cash. And yet, many banks provide stock with almost no vesting period and pretend that it is somehow different than cash. Stock does of course have the ability to appreciate in value, which cash does not, but now you get into an argument about the cost that shareholders bear when companies give away loads of stock.

And as Warren Buffett said on this subject, stock options are either an expense or they not. Applying his statement to the same topic in a different context, if a bonus seems too big, adding equity doesn't make it just right.

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Source: http://feedproxy.google.com/~r/businessinsider/~3/NLVAU4z7tZE/banks-equity-comp-2011-12

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2 Positive Signs for SanDisk

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SanDisk (Nasdaq: SNDK  ) carries $463.8 million of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be the case with SanDisk?

Before we answer that, let's look at what could go wrong.

AOL blows up
In early 2002, AOL Time Warner was trading for $66.27 per share.

It had $209 billion of assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how SanDisk holds up using his two metrics.

Intangible assets ratio
This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

SanDisk has an intangible assets ratio of 5%.

This is well below Heiserman's threshold, and a sign that any growth you see with the company is probably organic. But we're not through; let's also take a look at tangible book value.

Tangible book value
Tangible book value is simply what remains after subtracting goodwill and other intangibles from shareholders' equity (also known as book value). If this is not a positive value, Heiserman advises you to avoid the company because it may "lack the balance sheet muscle to protect [itself] in a recession or from better-financed competitors."

SanDisk's tangible book value is $6.3 billion, so no yellow flags here.

Foolish bottom line
To recap, here are SanDisk's numbers, as well as a bonus look at a few other companies in its industry:

Source: S&P Capital IQ.

SanDisk appears to be in good shape in terms of the intangible assets ratio and tangible book value. You can never base an entire investment thesis on one or two metrics, but there are no yellow flags here. If any companies you're researching do fail one of these checks, make sure you understand the business model and management's objectives. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

Powered By WizardRSS.com | Full Text RSS Feed | Amazon Affiliate | Settlement Statement

Source: http://www.fool.com/investing/general/2011/12/05/2-positive-signs-for-sandisk.aspx

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Bank Credit Officers Increase Business

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A credit officer plays a significant role in increasing the business of a bank. First of all, it is important to understand the job role. The loan officers, help companies and individuals get credit from the bank for various purposes. Start-ups, individuals and SME, need to be screened to ensure they qualify for the loan. Their backgrounds need to be checked for credit defaults. When a company needs start-up capital, or a running factory wants to buy more machines, they prepare the application with the help of the loan officer, who co-ordinates with supervisors to get the loan approval. The officer follows the bank's policy and procedures to ensure the high quality of the lending portfolio.

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Source: http://ezinearticles.com/6715194

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Fed Liquidity Sets European Banks Flying

The promise held by the collaboration among the world's largest central banks sent investors into a buying frenzy for the first time in months, with the shares for all banks rallying strongly into the weekend. Shares of Morgan Stanley, RBS, BCS and Deutsche Bank were big winners.

Source: http://www.forbes.com/sites/greatspeculations/2011/12/02/fed-liquidity-sets-european-banks-flying/

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Debt Consolidation: How to Consolidate Debt

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People faced with mounting debts and with deadlines of repayment looming in the distance often find themselves at such a loss of what to do next. After all, with loan repayments, it is not simply about being able to pay back the initial amount borrowed but the interest and other fees, if any, that were incurred.

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Source: http://ezinearticles.com/6724522

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