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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 76.22+0.1%3:59 PM EST
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To: hueyone who wrote (62713)1/19/2003 12:16:44 AM
From: rkral  Read Replies (1) of 77400
 
OT ... hueyone, re "some who argue that since stock option expense is a non cash expense, they would add it back in to free cash flow, much in the same manner as we add depreciation and amortization expense back in to free cash flow."

Exactly. Well .. that is exactly what Boeing does when calculating "net cash provided by operating activities". Take a look at Boeing's 10K for 2001 at sec.gov. Then search for "378". You will see that $378 million is "share-based plans expense" on the income statement. Then a $378 million "share-based plans" adjustment is made in the cash flow statement to reconcile net earnings to net cash.

Why? Could it be because the company actually increased cash .. by more than the "net earnings" .. because of the non-cash stock-based compensation expense on the income statement? I'm not an accountant .. but that sure sounds like a legitimate FREE cash-flow item to me.

You will also see a $378 million increase in "shareholders' equity" in the form of "additional paid-in capital" on the balance sheet.

Now in Boeing's case, the entire stock-based compensation amount is not due to options .. but let's pretend it is. If the options are expensed, the amount is added to additional paid-in capital. If the options are not expensed, the amount becomes part of retained earnings. The shareholders' equity is increased by the same amount ... in either case.

Ron
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