OT ... Pete, re "You certainly can choose to see the arguments I have constantly repeated [ed: ..] in support of my opinion [ed: ..] as "absense of support". "
Sorry .. I meant 3rd party support and didn't say so. Additional *opinion*, or even *interpretation* of fact, in "support" of an original *opinion* challenged by another .. when considered as a whole .. is *still opinion* IMHO. Do you not agree?
re "Do you always declare points of view that disagree with your view "dogmatic statements"?"
When authoritative 3rd party support I present is dismissed by others, and they don't present *any* 3rd party support of their own? Dogmatism is always my belief, and sometimes declared.
re "Differential nuance [edit: Bodie, Kaplan, and Merton] fail to focus upon is marketability."
Irrelevant IMHO. The expense is the value to the company, not the value to the employee, whether or not the values are different. (I have an authoritative 3rd party source for that, but I'm afraid you'd dismiss that too. <g>)
re "Therefore, Merbod got its shareholders to pay its workers directly and rightly from my viewpoint should show better net income than KapCorp. "
Compensation of workers is the responsibility of the company, not the shareholders. To believe otherwise is illogical, IMHO.
Imagine you're originally a 50% shareholder in DoNothing Corp, which has $0 revenue, $0 cash expense, and $0 net income (per your definition).
DoNothing Corp has no investing activities. The equity is 100% cash .. under the mattress of its only employee .. who is awarded a 50% share of the company every year. The award is a stock option grant with an exercise of $0. The options vest immediately, and the employee exercises immediately and does not sell the shares.
The ownership of the company looks like this ...
End of Year You Employee Others
0 50.0 0.0% 50.0%
1 25.0 50.0 25.0
2 12.5 75.0 12.5
3 6.3 87.5 6.3
Is this employee being compensated? Of course. Is this employee receiving cash? Of course not. After all, stock-based compensation is called non-cash compensation.
Let's quantify your ownership loss .. by assuming a constant $2MM shareholders' equity. Your original claim to $1,000,000 is now a claim to $125,000. A reduction of $875,000 .. sacre bleu!!!
You look at the Net Income every year and learn nothing. You look at the EPS every year .. and learn nothing. Both are stuck at $0.
You look at the Shareholders' equity and learn nothing. It's stuck at $2MM.
Now you can legitimately claim that inspection of Shares Outstanding will show you a number that's doubling every year. And applying this will show you that equity per share is being cut in half every year.
But that's not good enough for me. I want to see the effectiveness of management by looking at one number .. the EPS. Assuming shares outstanding is 2MM at the beginning, I believe the compensation expense and EPS should look like ...
End Begin End
Year Expense Net Income Shares Shares EPS
1 $1MM ($1MM) 2MM 4MM ($0.500)
2 $1MM ($1MM) 4MM 8MM ($0.250)
3 $1MM ($1MM) 8MM 16MM ($0.125)
Note that the sum of the yearly losses is $0.875 .. which when multiplied by your 1MM shares .. is exactly the $875,000 reduction in your claim to stockholders' equity.
Expensing stock-based compensation is preferred by the FASB too. That's why the FASB published SFAS 123, "Accounting for Stock-Based Compensation", in October 1995. I recommend you get a free copy at fasb.org
re "I'm sure you feel unable to reason with me. I know I feel unable to reason with you."
For me, not yet .. but I'm getting there. Perhaps you should ponder the common denominator in your inability to reason with John Shannon, GVTucker, PerryA, hueyone, *and* me.
re "Hell is a place where there is no reason. Perhaps we have both gone there and don't know it." LOL!
Regards .. really, Ron |
