Hi Don Lloyd; Good that we agree that the SEC doesn't need to have any interest in the value of employee stock options. But your other points, I still vehemently disagree with:
Re: "The option grant is made by the shareholders and is an offer of partnership/ownership. If the shareholders did not believe that even their diluted stake would be enhanced by the grants, the offers would not be made. "
Whether the option grant was thought to be an enhancing action by the "shareholders" (actually management) or not doesn't matter. It still needs to be shown as a compensation expense. The presumption is that everything a company does is to help earn money. That doesn't give an excuse to not show the expense of those actions.
Re: "The loss to the existing shareholders either is, or should be entirely captured by the increase in share count. Any additional depredation would be adding insult to injury." The first sentence is not true, consequently the second sentence, (which actually is a bit humorous, as it is not the purpose of P&L statements to depredate share holders) does not apply. I will type in a complete example showing this fact after I get done posting this note.
Re: "If I, as a non-owner, want to buy the entire company, the total value will depend entirely on the accounting dollar entries. If the existing shareholders decide to dilute their shares in any way, in any amount, it will not affect the total company value."
This is correct, in that the total value of the company doesn't depend on how many shares are outstanding, but it is misleading. The issue is how much is a share worth, not how much is the company as a whole valued in the market at. The purpose of P&L statements is to estimate how well a company is returning profit to the shareholders, not to give an estimate of "the total company value."
-- Carl |
