Huey - Yes, you are closing in on the truth of the matter.
And it is even more astonishing than you might believe.
Hi John. Thank you for your considerable effort in putting those numbers together for your post. I have had a chance to briefly study your post, and yes, the truth about real wealth creation may indeed be even more astonishing than I thought, or on the other hand, I may be slightly confused. I was under the impression that when companies purchased other companies or capex with shares (as opposed to stock options) that companies were obligated to show an equivalent dollar value investment amount in the investment cash flow section of the cash flow statement. Of course I presumed that this same dollar amount would be added back into the cash flow statement in the finance section so that the bottom line cash flow number would balance out for actual cash flows. So if share based payments for capex or businesses are included in the investment section of the cash flow statement, I further presumed that these investment expenses were showing up in folks free cash flow calculations.
Your post however, appears to indicate that not only are companies getting away with excluding stock option expense in their free cash flow calculations, but they are also getting away with ignoring purchase of capex or businesses with actual shares in their free cash flow calculations. If this indeed is the case, the fraud being perpetrated on investors by those touting free cash flow numbers that do not take into account either share based purchases or employee stock option compensation, is far greater than even I suspected. Am I missing something here?
Mindmeld, John, do you have comments on the accounting for share based payments? I know that share based compensation payments to employees(unlike stock options) are required to be expensed and deducted from net income. Do not share based payments to acquire capex or other businesses show up as an expense in the investment section of the cash flow statement? Are not these share based investment expenses subsequently deducted from free cash flow? If not, free cash flow numbers being touted for tech companies are an even more misleading number than I thought.
Best regards,
Huey |
