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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: Pink Minion who wrote (98503)	8/22/2002 1:43:53 PM
From: Timothy Liu	Read Replies (2) of 99280

> Expense Option. Let's take a look this scenario: Company ABC give out 2% of stock every year to employee. From investor point of view, there is no change to company operation, cash flow and fundamentals except at the end of the day his stock will worth 2% less every year. This is the dilution effect. Say Company ABC grow at a rate of 8% a year. What this mean is the real EARNING PER SHARE growth is 6%. The earning does not suddenly become negative because of the option. It is just DILUTED. It means for shareholder, the company does not grow as fast as the top/bottom line indicated. At this moment when most people talk about EARNING GROWTH, they are already talking about EARNING PER SHARE GROWTH - earning on a fully diluted bases. So what else needs to be done? Stock option is a lesser evil to straight stock give away and its effect is similar and to a lesser degree. As you said in your post, if you sell the stock and give cash to employee, cash flow IN AND OUT the same day. Actually for stock grant IN and OUT are the same. The problem with expense option is we only show it on the way OUT. Cash flow IN is not accounted for. All IMHO. Tim

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