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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Uncle Frank who wrote (50490)	2/26/2002 1:04:14 AM
From: Pirah Naman	Read Replies (1) of 54805

Frank: you may have missed this exchange between two parties on the qcom thread regarding the dilutive nature of stock options. I did miss it. The company should only show the [option price x number of options exercised] as paid in capital. There is no discernible net cash flow in either direction from the difference between the share price and the option price. If the option price is less than the stock price at the time then yes there is dilution. There is a cost associated with that dilution to the shareholders, as the dilution reduces the size of the future free cash flows accruing to each share. The cost would be the difference in the values of the [pre-dilution and post-dilution] streams of free cash flow. What bugs me is when the tax benefits of this kind of thing are included in income, and in that part of the cash flow statement that is for operating cash flows. IMO this belongs in the financing portion of the cash flow statement. The inconsistency on the earnings statement is well documented so I can't add anything there. - Pirah

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