re: Sebl Free Cash Flow
Hi Mike:
Excellent effort as usual on the Sebl report. As you aware, however, I have been having some problems accepting your reported free cash flow numbers, which used to be my free cash flow numbers<g> and do not take stock option expenses into account, as being a relevant indicator of the company's ability to create and retain wealth for shareholders. We still have ongoing discussions regarding this issue on the Cisco thread if anyone is interested.
An old Fool on the Hill article back in 1999, which I wish I had read and understood back then, makes the point that mistakes made in the net income statement, referring to failing to expense stock options, are carried right over into the other financial statements including the operating cash flows section of the cash flow statement:
fool.com
If what you're saying is true, only the income statement would be impacted. The balance sheet and cash flow statements would still be accurate, right?
Not really. All three financial statements are intertwined and inaccuracies in one carry over to the other. In the same way that net income is overstated, cash flow is effectively overstated. The actual amount of cash isn't misstated, but the company has given away a cash-substitute (the option), which is not reflected on the cash flow statement. If the company were forced to pay its employees in cash, rather than with "self-published" options, operating cash flow would be lower.
JMO, Huey |
