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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: Clarksterh who wrote (36)	6/13/2002 3:49:33 PM
From: hueyone	Read Replies (1) \| Respond to of 786

Yes, I am missing your point. Cash flow is cash flow and there is no making cash flow "smoother or rougher". In the end, net cash provided by operating activities is a pretty hard number. Can you tell me from your philosophical point of view how donating shares to charity and taking a charge against earnings (net income) for the market value of the securities is different than compensating employees with stock options and valuing the options at market value minus strike price at time of exercise and taking a charge against earnings? Again, you cannot. There is no economic difference. I am beginning to suspect that as a telecommunications executive with a Stanford degree, that your compensation package is likely to be heavily weighted with stock options and that your objectivity in this manner is colored accordingly.<ggg> Uncle Frank's only complaint about stock options is that he doesn't have any. I don't have any complaints against stock options; my only complaint is that there is no accounting for stock options. In some cases this has perverted investment opportunities so that otherwise good companies are no longer a worthwhile investment from the public's point of view---unless the greater fool theory rises to prevail once again. Best, Huey

To: Clarksterh who wrote (36)	6/13/2002 4:08:25 PM
From: rkral	Read Replies (1) \| Respond to of 786

>>But you will find that all of the other reconciliations are to make earnings a smoother version of cash flow. What you are proposing is the opposite - making cash flow smoother than earnings which defeats the whole purpose of a separate earnings statement.<< Clark, where is this "smoothing" concept coming from. Do you have link(s) that would help explain that concept to us (me)? I thought the income, cash flow, and balance statements were supposed to present reality to the shareholder. Smoothing sounds like legal manipulation .. and imho accountants would be foolish to use that term. Now I believe companies do manage earnings. For example, the last time I looked at a plot of GE's earnings (log plot, I think), it was a virtual straight line for many years .. most likely as a result of earnings management. Is this the type of smoothing to which you refer? No accountant here either. Come to think of it, I've been on SI for almost 3 years and can't recall even one person admitting to being an accountant. That seems strange. Have you met any? Ron

To: Clarksterh who wrote (36)	6/13/2002 10:20:08 PM
From: Stock Farmer	Respond to of 786

But you will find that all of the other reconciliations are to make earnings a smoother version of cash flow Absolutely not. Clark, there are three statements that the company keeps: The Income Statement, which is supposed to be representative of the PROFIT earned in the period* The Cash Flow Statement, which summarizes the changes in the company's Cash Account. Which is completely different from profit. The Balance Sheet, which summarizes all of the accounts of the company and discloses the distribution of shareholder equity. People start out getting very confused because of something called "Free Cash Flow", which is a measure of current profit without pollution by past events. It is Earnings adjusted to remove allocation for past expenditures under "Depreciation and Amortization" and replace these with actual expenditures under "CAPEX". Unfortunately this preferrable (in some schools) proxy for profit has directed people to the Cash Flow statement 'cause they see the two words that follow "Free" and fail to understand. Indeed, popular trade press has even mistakenly taken to using Operating Cash Flow - CAPEX as the definition of Free Cash Flow. * Note on "Profit" and Options: The whole issue with stock options is whether the company is reporting Profit made BY the company in execution of its day to day business, or FOR the shareholders as a result of its decisions. If Earnings are merely reporting profit made BY the company, then stock option accounting does not belong. If Earnings are reporting profit made FOR the shareholders, then stock option accounting does belong. That's really the crux of the issue. Since I believe that the company is reporting this profit TO shareholders FOR the benefit of shareholders so that shareholders don't have to do it themselves, I figure that the company should report profit earned FOR shareholders. The company was active in the decision and management should be accountable for it. If not in the books of the company where profit is supposed to be reported, then where? John