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.
I agree with you and I am not in favor of revamping the cash flow statement, but non cash items do appear on the cash flow statement, it is just that they have to be reconciled with ending cash. For example, I assume that if GAAP required net income to include the non cash expense for stock options expense, as it does for depreciation, that this figure would appear on the cash flow statement under net income, and then would subsequently be added back in on the cash flow statement in the section that reconciles net income with net cash provided by operations. And of course with regard to my Oracle or Dell example, share repurchases to offset stock option dilution, which do use cash, do indeed appear on the cash flow statement as a reduction to cash in the finance section of the cash flow statement.
But what about reported free cash flow, which is not an actual line item on the cash flow statement? Would you agree with me that reported free cash flow numbers, like reported earnings, are a poor and misleading indicator of a company's ability to grow and retain wealth from internal business operations for outside shareholders benefit when stock options are involved, but stock options are not expensed? And would you agree with me that reported free cash flow numbers, like reported earnings, make for poor cross industry, cross company comparisons when one of the companies in the comparison uses stock options and the other company does not?
Regards, Huey |
