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Pastimes : Austrian Economics, a lens on everyday reality
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To: TimF who wrote (33)12/10/2001 9:01:24 PM
From: Don Lloyd   of 445
 
Tim -

When dealing with buybacks of granted options it in a sense seems to be a delayed payment of the cost of compensation. But I'm not sure that they should require share buy backs to count against earnings. If I remember correctly when a company issues a dividend it doesn't count against earnings. If I'm wrong about that then maybe it does make a bit more sense to count buy backs against earnings. But I'm not sure how far you want the thread to diverge in to discussing account rules.

No, buybacks shouldn't count against earnings, as they are just investments that have neither lost nor gained at the instant of purchase, but it means that the actual effect of option compensation, i.e. dilution, is hidden away in the attic and management is not normally held accountable for ill-timed buybacks.

Dividends shouldn't count against earnings, because they are paid out of earnings. This is where payout ratio comes from.

From the evidence, thread divergence doesn't seem to be a major concern. -g-

Thanks, Don
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