What the following means is that unless stock
watering scams like MSFT, CSCO and other junk,
whose accounts the SEC much much worse than
useless garbage and other garbage the Govt. has
put in charge of looking after the interests of
its mob owners - can buy it off -
they'll be forced to FULLY CHARGE OPERATING
EXPENSES SUCH AS WAGES TO EARNINGS. This will
take MSFT P/E ratio to 100 as an example.
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US companies face new pressure on stock options
By Andrew Hill in New York
Published: May 12 2002 21:06 | Last Updated: May 13 2002 13:03
Financial Times
US companies will this week come under increased pressure to deduct the cost of stock options from earnings.
Standard & Poor's, the stock indexing and credit rating group, will announce on Tuesday that it will change its assessment of corporate performance to take into account the cost of stock option awards.
The collapse of Enron has fuelled calls for changes to the accounting treatment of stock options as part of heightened concerns over transparency and corporate governance.
The demise of the Houston-based energy trader has been blamed partly on lavish executive compensation, which encouraged executives to inflate earnings artificially, against shareholders' interests.
S&P has decided that for all companies included in its US indices it will deduct stock option expenses from its calculation of operating earnings.
S&P also plans to detail how its new approach, which will exclude items such as pension gains, and gains and losses from asset sales, would apply to the earnings of such market bellwethers as General Electric and Cisco Systems.
In an article in Monday's Financial Times, David Blitzer, S&P's chief investment strategist, describes reporting of stock option expenses, on a quarterly as well as an annual basis, as an essential reform in the quest for "clear and transparent earnings reports that honestly portray the company's profits and losses".
But as pressure for reform of accounting standards has mounted, many companies have come out against deducting the cost of stock options from earnings. They argue that it would be impractical because the cost has to be estimated until the options are exercised. Most US companies choose to include pro forma estimates of their earnings after stock option costs as a footnote in their annual accounts.
Advocates of stricter accounting standards claim corporate America is opposed to change because it would affect executives' remuneration. Earlier this month, Warren Buffett, the influential investor, described the corporate lobbying campaign against reform as shameful.
S&P's decision, which follows months of discussions with the investment community, will not alter the accounting rules but it will put pressure on companies to supply more information about the cost of stock options and other data. One person close to the group said S&P would be "active in trying to take this formula and promoting it".
Mr Blitzer, who headed the S&P review, also says in Monday's article that companies should make "a clear distinction between pension investments and corporate earnings". |
