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Technology Stocks : Qualcomm Incorporated (QCOM)
QCOM 174.01-0.3%Nov 14 9:30 AM EST
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To: carranza2 who wrote (125897)12/6/2002 11:41:59 AM
From: Wyätt Gwyön  Read Replies (2) of 152472
 
c2, i believe you are misinterpreting me. what i am suggesting has nothing to do with mgmt needing to predict the future value of the stock or options. this is not mgmt's concern. but it is the concern of investors to assess the value of future profits, and in order to do this, they need to know what the co's costs are.

options granted today have a definable value today. this is the value which should be recognized as a cost TODAY. in large measure, this cost is INDEPENDENT of where the share price is, for the same reason that cash wages are independent. as i explained, if an exec has total target compensation of $10 million, with $1 million coming from cash, then a co can provide the other $9 million via options, regardless of whether the stock is at 50 or 10.

by recognizing these expenses as grants are made, the co is informing shareholders of the ongoing economic value transfer to mgmt. this is useful information for investors in assessing the co's value. conversely, by ignoring this economic value transfer, investors run the risk of overestimating a co's profits. this is clear from the example of a co that pays all its expenses in options and is therefore 100% profitable as long as option expense is ignored. investors ignoring the option expense in the case of this co will have a poor understanding of the co's true economic profitability.
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