Frank
>> No Frank, the case of the stock buy is an expenditure of actual cash on the part of the company, whereas your example is the absence of extra profit. Quite a difference.<<
I don't see the difference...
If you can't see the difference between an expenditure and a non-expenditure, Mr. Market will continue to enlighten you. I suggest, however, that it might be less costly for you if you took some accounting instruction.
In both cases that arrangement resulted in the company receiving less revenue than it would have realized in the spot market.
If, in fact, that were the entire case the issue of accurate option cost accounting would have less importance.
However, it is not. Companies are buying stock to delude investors that there is no (or little) dilution from these options exercises and then not recording the cost of the buy-back as an expense. In your example, if the selling company bought the components for $15.00 to deliver at $10.00 and did not record the -$5.00 as a loss, the company would be up on charges of fraud. They should also be up on charges of fraud for not counting the true cost of preventing dilution due to options exercise as anything other than an expense.
If it is reasonable to account for the loss of opportunity in one case, it should be in the other. Imo it isn't.
To paraphrase your reasoning....if it is reasonable to count an expense as an expense in one case, it should be in another.
The reason we have a system of public accounting of publicly traded companies is to give investor full and accurate disclosure. If one does not insist on such disclosure it is only a matter of time before the wheels come off. Those who do not remember the past are doomed to repeat it, as it appears we are doing now in the markets. The only way to end the pain is to fully disclose so that confidence in the system can be restored. The longer we delay full disclosure, the longer the pain will continue. The pain is in the resistance.
TimbaBear |
