Zeev's Turnips - No Politics Message Board

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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: Boca_PETE who wrote (30655)	2/18/2002 11:05:12 PM
From: Stock Farmer	Read Replies (1) of 99280

Good post. I was in full agreement until you began to draw conclusions. We diverged in opinion here at this line: This is mumbo jumbo accounting. It accomplishes nothing. IMHO, it's not about cash flow or presentation of assets. It's about what shareholders are paying and what they are receiving in return. Take a look at Cisco. Merely as an exemplary example. Not that it is alone, just that its books are easier to descipher than some! Details here: Message 17078954 Bottom line: Over the past four years, net of equity gains, shareholders "paid" 12 Billions for employee stock option exercise, in a period where Cisco earned five billions. Give twelve, get five back... that's not what you think of when it comes to investing in the mighty Cisco. Particularly when you look at the income statement. 4 year Cumulative EPS of $0.70 ($0.83 if all dilution is ignored). So it's hardly within a few miles of fair to assume that dilution accounts for the "cost". Actual loss of seven billions to shareholders works out to $(0.96) !!! That's a difference in EPS perspective of 1.66 in the wrong direction. The amount of forensics necessary to unearth the fact that Cisco (of all companies!) has generated serious net negative wealth for shareholders is the real issue here. For everyone, except perhaps employees and insiders and other beneficiaries. IMHO, the question at hand is "from whose perspective" are we accounting things. I happen to believe it should be from the point of view of the shareholder, and in such a way as to be able to assess the comparative merits of one investment versus another. So if there are two accounting presentations with equivalent economic basis from the company's perspective, I would prefer the one that clarifies the shareholder's perspective. Showing the cost of stock option exercise as a charge to earnings and a credit to paid in capital is brilliant. Just as you pointed out there is no economic shift in presentation of the company's net assets. But it sure would present who's earning how much and for whom in a much clearer light! Seems to me that all those non-accountants who don't get it, actually do. John.

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