the analogy i have mentioned several times (first mentioned by an accounting Nobel Laureate in the WSJ) is, if everything were "accounted for" just by EPS dilution, then a co could theoretically pay every single expense via options to all its payees (e.g., utilities, raw materials suppliers, landlords... heck, maybe even the IRS!), with the absurd result that the company would have zero cash costs and 100% margins!
And the price of the stock would be deterministically $0, making the price of the options also zero. I.e. it couldn't actually work that way. Dilution and options pricing are different things - not readily translatable from one to the other. As long as there is full disclosure why confuse the situation by a very muddy attempt to equate two very different beasts? A rhetorical question since I am not really interested in rehashing.
it doesn't get counted twice. see, the options dilution which happens today is based on past options issuances. whereas the options which are issued today, which may not dilute EPS for many years if ever, are nevertheless compensation which is delivered today, for services which the co receives today. that is to say, they are an expense which is to be incurred today.
Not true. Diluted shares actually includes some of the options outstanding, even those not yet exercisable much less exercised. Thus, if this is the only claim as to how this is not counting them twice then they are being counted twice.
Clark |
