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Strategies & Market Trends : Value Investing
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To: James Clarke who wrote (14053)3/1/2002 12:37:19 AM
From: TimF   of 78717
 
1) the scale

Good point.

2) Income statement accounting is based on expenses being matched with revenues. Saying options show up in dilution doesn't cut it, because that shows up years later. Take a very clear example. I got paid last year. That showed up on my public company employer's income statement. I also got bonuses. That showed up on its income statement. (Don't worry, I'm not even a rounding error!). But they also gave me options. That was something of value paid to me for work I did last year, but it shows up nowhere on the company's financial statements. Whats the difference bewteen that and cash compensation IF THE INCOME STATEMENT IS SUPPOSED TO REFLECT WHAT IT COSTS TO COMPENSATE EMPLOYEES FOR THEIR SERVICES. Thats the problem.



But it costs nothing. The options only cost the company a small amount to administer the options program. Yes they do have a cost to the shareholders in terms of dilution but that isn't a cost to the company it is just devideing the same company over more shares. But if you do decide to count that as a cost the cost of the dilution doesn't show up until and unless the stock is diluted. If they are never exercised there is no cost to the shareholders. If they are exercised the cost is the dilution and shouldn't be double counted by lowering earnings and spreading out the lower figure among more shares when you calculate EPS.

Tim
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