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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: orkrious who wrote (30676)2/18/2002 7:44:38 AM
From: Boca_PETE  Read Replies (2) of 99280
 
orkrious:

I agree that "The truth is is that stock options compensate employees"

I agree that stock options "dilute existing shareholders".

I disagree that dilution occurs "without hitting the income statement."

- While the theoretical stock option expense amount computed using the Black Scholes Model is not reflected in the absolute amount of reported net income (because it is paid directly to the employee by shareholders), per share net income IS REDUECED BY the cumulative dilutive effect of additional shares issued in connection with options exercised. Moreover, the diluted earnings per share each period adds the dilutive impact of all in-the-money outstanding stock options (even those which are not exercisable). So the dilution from stock options IS REFLECTED ON THE INCOME STATEMENT as additional average shares and a reduction of per share net income.

P
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