April 13, 2000

Decimal Point Dyslexia

I keep misplacing the decimal point and make conclusions about quantities such that the fantastic to me is mundane and, the mundane to me is fantastic. I suppose this is best called decimal dyslexia.

For example, I had a hard time sleeping tonight, and I woke up, read a bit from a book titled "The Victorian Internet" about the history of the telegraph, let my mind wander, and felt compelled to rise up from my bed and check the financials on Yahoo!. First thing I noticed as I checked their 1998 10k is that the aggregate market value of their outstanding shares is 15 billion dollars. I counted all the places very carefully as I slid my finger across the screen under the number. After quickly scanning the description of their business, internet media thing, I scrolled down to the end where I found their financial statements (audited by Price Waterhouse who testify to the opinion that the statements are fair representations of the financial condition of the company) and noticed the following. Annual sales were 200 million, net income (they actually had a net income for the year) was 20 or 70 million dollars, Total assets valued at 600 million dollars.

Now the crazy thing is that Yahoo!'s biggest asset is the cash it holds in "investments" (about 500 million), that it's contributed capital is about 500 million, and that it makes money from investment income. So, Yahoo appears to be more of a market fund account with high overhead, low returns (14 million) and is worth to the investing society as shown by the freely determined market to be worth 15 billion dollars.

I'm trying to scale this down so I can comprehend this. People are paying 15 thousand dollars for every 20 dollars Yahoo earns. People are willing to pay $750 to get one dollar of yahoo earnings.

See, my decimals are way off.

Posted by mrbdawg

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