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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 76.07

-1.1%

Dec 1 3:59 PM EST

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To: Don Lloyd who wrote (64556)	9/15/2003 4:50:28 PM
From: Kirk ©	Read Replies (2) of 77400

Bingo! It seems to me that one legitimate use of the P&L statement is to help distinguish a viable company from a non-viable one. To do this we simply assume that the current P&L report will be replicated into the indefinite future. In this case, a viable company would be one that shows a positive or zero profit and a non-viable company would be one that shows a positive loss. If a company issues options each year, earns $10M a year, pays a 5% dividend using those earnings and the stock price goes nowhere for 100 years, then the options it gives would expire worthless. The folks who want to expense options would have to account for the options losing value with time as they approached expiration. Would they then recommend the time decay be added back to company earnings? Would a company that got a tax break from when it issued the expensed option then have to pay the tax cut back if the options started to expire (as the decay in value is added as income)? I can see all sorts of monkey business that can be done to satisfy this farce. How could a company make plans if their P&L was determined by the stock price which is often disconnected from reality? You and Pete make some great points! BTW, as a shareholder, I'd like to see a table showing how dillution occurs as a stock I hold rises in price and more shares are "in the money." It is not a simple linear relationship to double earnings and the stock price doubles for the same P/E since the number of shares outstanding will go up with the price due to options exercise. Kirk

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