nVidia is now #2 financially in the graphics world.

I feel the same way when reading the more technical 3d discussions

 

I had to check this out for myself, because I was a little skeptical. After some digging, I found the D/E ratio to be something like this:

Debt Ratio= Long Term Debt / Total Shareholder's Equity

Look at both of their balance sheets and this seems to check out. It doesn't have anything to do with Market Cap, it's do with the equity in the hands of shareholders within the company...and that equity is in the form of retained earnings, capital surplus, common & preferred shares, treasuries, options etc...whatever the hell that means.

http://biz.yahoo.com/fin/l/n/nvda_qb.html
http://www.ati.com/companyinfo/ir/2003/atiq303.pdf

So "net cash" can be worked out like this:

(Cash + Short term investments) - Long Term Debt

ATI = (235 + 49) - 28 = 255 million
Nvidia = (278+771) - 305 = 744 million

 

bunker - quite right.

The problem with D/E is that there are many (equally valid) definitions of both D & E... and as I wasn't sure what biz.yahoo were using (and was being too lazy to find out), I made an assumption and used a number for E that was conveniently to hand

More fully,

Equity can be:
- Book (shareholders') equity
- Market Capitalisation

Debt could be:
- long term debt only
- long term debt plus short term debt
- either of the above plus certain "off-balance sheet items" such as operating leases duly capitalised, tolling contracts, pensions obligations etc.
- any of the above less cash
- any of the above less cash and ST securities.

But with your extra link supplied, (which I was too lazy to find), we have your numbers. As digi asks though, I would be a little hesitant to include ST investments - especially as any money market, highly liquid investments made by the treasury function in the firms, will be counted as "cash equivalents".

Still my conclusion would be: unless it's your job, don't bother looking at the numbers If a company is in financial trouble, either you will hear about it from elsewhere, or you wouldn't have spotted it yourself Besides, numbers and accountancy are boring!

 

I think that it would be sensible to substract current accounts payable and/or accrued expenses.

 

Quite right, although, in this case, NV characterize their s/t investments as "highly liquid investments with a maturity of greater than three months when purchased."

 

Yes I knew you were being hypothetical in trying to explain to the folks the general concept. Just had me a bit confused with that market cap thing. For instance, I punched General Electric's (GE) numbers into the equation and came up with +$1 trillion in debt. I couldn't figure out how they were surviving...lol.

 

I agree it seems a bit dubious to just look at one thing and call it their "Debt", but apparently that's what yahoo is doing. I guess it should be regarded more as an apples to apples type reference for screening stocks, than an accurate depection of their debt.

 

I think a little summary/clarification of terminolgy is due:

Debt to Equity has nothing to do with market cap. It is simply based on accounting figures (book value and total debt).

Market capitalization is what the market (you and me and fundmanagers etc. as a group) values the company at. Set by supply and demand. It is the stock market price times the number of outstanding shares.

In theory, a company's value (market cap) should be the total of all expected future profits, adjusted for expected future inflation. A lot of expectations, so naturally garbage in and garbabe out applies. Right now the market expects (slightly) higher future profits from ATI.

PE is a multiple derived from price over earnings. A high PE means that the market EXPECTS higher earnings in the future. Failure to meet this will result in stock price drop. In essence this is like betting on the favorite at the horse races. Good future financial news is priced into the stock.

In essence this is a game of outguessing. To make excess stock market returns, one needs to determine not which company will perform better, but which one will perform better than expectations. This naturally depends on many many factors, most of which are outside of our control, and of our ability to predict. Of course some very smart people with some very good sources of information (such as frequent sales channel checks) are able to "beat the market". Likewise, very smart people with lots of good information lose bucket loads of money. For example, a lot of people bet the farm on 3dfx because they thought that Glide would give a proprietary monoplistic advantage. Suckas.

And of course, one should note that even though ATI and Nvidia are in competition, investmentwise there are many factors that help or hurt both companies (PC sales etc.). Their fortunes are joined to the health of the PC and tech industry, so one's problems is not necessarily the other ones fortune.

 

Also in regards to debt equity, low is not necessarily better than high, and vice versa.

It refers to the amount of leverage in the company.

For example, imagine that you have $10 000 cash to invest and have two options:

1) Invest it in the stock market.

2) Put the $10 000 down, borrow $90 000 from the bank. Invest all $100 000 in the stock market.

Which is better? Depends. 1) Is safer, but 2) has the potential to earn much more money. There is a tradeoff here.

Companies try to leverage themselves so that they can earn higher returns without risking getting into trouble (bankruptcy). Too low and you are foregoing returns, too high and you are risking it all. Each industry and company has its own optimal point, and as always this is a subjective call based on many unknowns.

 

Good luck with ATYT. Let's see what happens when their CEO is finally indicted over the insider trading charge.

 

Like Nvidia before it, they'll probably just pay a fine for screwing up their books and move on.