Huey,
I read the Fortune article again. Thanks for the link.
I don't really know how to react to the "newness" of the idea. I first became aware of the issues about stock options in 1996 or 1997 at the latest when it was brought up and throughly discussed at the Motley Fool with regard to AOL. Maybe its because I became aware of the issue so early in my online career (maybe the first six months of it) that seeing other articles and messages about it since then reminds me that "Oh yes, I'm aware of the concern." Or maybe there really hasn't been much written about it in recent years. I really don't know.
Back to your question ... considering that employees are at the core of a company's operations, what is the basis for companies not including the option's portion of employee's compensation as an operating expense?
To answer your question, I dunno. That was helpful, huh. :)
Seriously, I don't have a comprehensive or detailed understanding of the various ways the three primary parts of financial statements relate to each other. I think I understand some of the basics, but I really don't know the answer to your question other than the answer provided in the Fortune article.
Where I think the author of the article should have been a little more benevolent is in pointing out that the line items relative to employee stock options do traditionally appear in the cash flow statements. If we're going to be so hard on companies and FASB for not putting the numbers in the income statement, let's at least tell people where they are. And maybe we should be equally hard on investors for not reading cash flow statements.
(Personally, part of the reason I wish companies would issue cash flow statements with their earnings reports is because I don't think most investors read SEC filings. If companies put them in the earnings reports, a lot more investors would read the cash flow statements and become more informed about them.)
You made a cogent point by repeating Pirah's cogent point: at some point, a winner, a gorilla, a king, whatever the company or label, must make lots of money from operations.
Relative to that, I've gotta repeat my question: Considering that employees are at the core of a company's operations, what is the basis for excluding the cash flow issues directly related to acquiring the employees when trying to arrive at free cash flow generated by operations?
If you can arrive at an adjusted free cash flow that is meaningful to your decision-making process, more power to you. However, though I might be entirely missing something, I don't see the logic of deducting anything about employees from numbers having to do with operating cash flow if indeed the purpose is to assess the amount of money being made from operations. Maybe you or someone can help me get a grip on that.
--Mike Buckley |
