John - And so far, nobody has offered up a comparable way to value stock options in dollars and cents. Except at Zero.
You are dead wrong. I advise you to look in Qualcomm's 10-k. Or the Intel, Microsoft, ... 10-ks. Amazingly they all do what you say "nobody has done". Probably because it is a GAAP rule! They have to report Pro Forma the cost of options issued at the time of issue. I still have some problems with this, but it is vastly more reasonable than your bizzarre method of accounting which - to be honest - I would love to see institutionalized since then I could get some great investment opportunities (the companies which were the best performers would all get hammered since generally their stocks have gone up the most since the options were issued).
Wrong again. Yes, cash flow did get hit. Or does get hit. Or will get hit. After the fact, in all three tenses. Positively. Due to the stock option tax benefit. The IRS calculates the cost to shareholders IN EXACTLY THE SAME WAY I DO and applies this tax credit to avoid double taxation.
Ok, I concede that the IRS does allow a tax break (on a non-existent cost) and thus the company's cash flow is positively effected! This hardly seems to favor your argument since there is no corresponding line in the formal statements which shows a negative impact in cash flow from stock options. The closest thing is the pro forma earnings (! not cash flow!) mentioned above.
. "Perhaps" implies doubt. You should be more emphatic: yes.
Ok, I'll be more emphatic. Neither you nor I know since we do not have the average strike price of the exercised options since that isn't reported in a 10-Q! But it is very close to break even since the average equity per share is $7-8 per share and so was the strike price you assumed for the options exercised in the last 2 quarters.
I never claimed this. I claimed that the dilution is equal to the number of shares times the DIFFERENCE between strike and market price at exercise.
I concede that I made an error in what I wrote. Doesn't change the argument since the options do not have that cost. Period! You are assuming that the company is buying the shares on the open market, which they are definitively are not doing.
When the option is issued there is an ESTIMATED cost. When it is exercised, there is an ACTUAL cost.
Should be easy enough for you to show me where it shows up in the cash flow statement- something notoriously difficult to gimmick. So where is it?
Thus we know that the dilution is EXACTLY equal to the difference between strike price and market price.
No, we definitively do not know this. Depends on what is being diluted. We were talking about equity, and it depends on the equity per share vs the strike price of the option.
Bottom line, I will happily invest in a company that increases earnings and cash flow by, say, 15% per year while diluting the stock via stock options at a rate of 2% per year with a strike price equal to the issue date share price. You welcome not to, although it is a mystery why. A simple calculation shows that in 10 years the earnings will be up more than 200% while the number of shares will be up less than 30%. Still a very good deal for the shareholder.
Clark |
