To: RetiredNow who wrote (59739 ) 6/8/2002 9:47:58 AM From: hueyone Respond to The truth is that this is accounted for in Earning Per Fully Dilute Shares, which most analysts use when calculating PE etc. Given that, I'd argue that Wall Street is not being fooled by options not being expensed, because it shows up in diluted EPS. two ways. The dilution impact that you keep referring to is only one of the two ways. If the impact from employee stock options was only a dilution impact, then it wouldn't make a rats ass difference what the strike price is or what the market price is at exercise, or alternatively, it would not make a rat's ass difference what price the company could sell these same shares to the public for at full value for, or alternatively it would not make a rat's ass what the value of the these options are at grant using Black Scholes valuation model, but these things do matter. As soon as options are granted there is an estimated value and as soon as they are exercised, it is easy to calculate an actual value. (By the way, Buffet can calculate an actual cash value at any time---even when the options are underwater.) Simply looking at net income based on diluted shares does not capture all the expense and is a bogus argument. fortune.com Giving out options costs a company's shareholders in two ways. The first is by diluting their stake in the company. When employees exercise their options, a company has to issue new shares. This means there are more shares outstanding, which in turn means the stake of existing shareholders in the company is reduced. So when an option is issued, it amounts to a claim on the company-- think of it as someone putting a lien on your house. And the only way to find out about that lien is to look deep in the footnotes of the annual report.
