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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.18

+0.2%

3:59 PM EST

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To: Stock Farmer who wrote (62789)	1/28/2003 1:21:45 PM
From: bofp	Read Replies (2) of 77400

OK, While the market may believe that a share is worth $60 or $13, that worth is built on expectation that ownership of that share will generate future cash flows - and by that, I mean total cash flows that can be claimed by equity holders. The impact of investments count. The paid-in capital by options exercizers count. The dilution of additional share issuance counts against you. Buying back shares counts as cash out and total shares reduced. Over the period in question, most of the shares issued were options. Meaning, that when the option is exercized (most in the money options are not exercized until the shares are to be sold or the options are to expire) the holder will have to pay in cash the strike price of the option. For most of the options exercized over the last 6 years, the current price is considerably lower than the strike price at which the option was exercize. Could I not argue that the options program actually generated wealth since the options holders "overpaid" for their shares? Furthermore, many of these options have not been exercized at all - we consider them diluted shares because of their future claim on cash flows, but since we are only considering wealth created in a discrete timeframe, shouldn't we exclude them since their paid in capital impact will be in the future if at all. In any case, I should not subract the market value of the securities underlying the options from cash flows - employees were given options NOT stock. The wealth creation calculation should be pure and simple. (LIQUID cash value of assets at end of period/ending FULLY diluted shares) - (LIQUID cash value of assets at beginning of period/beginning FULLY diluted shares). The value of options granted will be determined at the time of execution. We can try to estimate the costs to match them with income statement revenues but there is no such estimation on a cash flow statement. It is either cash now or it isn't on the statement.

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