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Strategies & Market Trends : The New Economy and its Winners
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To: stockman_scott who wrote (13367)8/8/2002 6:45:03 PM
From: Wizard  Read Replies (3) of 57684
 
Everybody distinguishes between basic and fully-diluted shares on their income statements already... it is only the method that is under debate. If they change the rules, it doesn't change the valuation, it just changes the accounting. When Cisco's stock was flying high in '99/'00, they did 53 cents per share in diluted EPS and 57 cents in basic shares (fiscal 2000). The option expense worked out to 4 cents per share. It is on the income statement. It is in the filings.

So now the SEC might change the way this is done and accountants might want to call the 53 cents 42 cents or 10 cents or whatever. Who cares? The stock should be valued on its ability to generate cash over the long-run. Who cares how accountants want to format it on a GAAP basis?

Everyone knows that you are likely to get diluted by some percentage over time (if the stock goes up). Companies should try to minimize the dilution but the only way any of this matters is if investors somehow are getting diluted by MORE than they already understand (we all know there is a % of dilution and that is why future earnings estimates use higher share counts in the denominator of EPS calculations, its already being accounted for...). Given the publicity of this issue, us shareholders of stocks may end up getting LESS diluted than previously understood so this outcry is good for us but I doubt that happens given that it doesn't make much sense.

At the end of the day, if current assumptions of dilution don't change and the cash generation of the company doesn't change, then the valuation won't change.
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