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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Edward Boghosian who wrote (71283)	7/17/2002 9:51:21 PM
From: jonkai	Respond to of 74651

I wonder what Microsoft's profit would be over the last few years if it restated its options as expense instead of income? you can go to MSFT's investor relations site, and actually find that information if you look at the end of any given report (do a search for employee stock options, or ESO), it is about a 1/3 haircut on any year for the past five or so years on average....... course then there are other things that they are doing to, that added a 1/3 to earnings..... but now that they are loses, suddenly they are one time charges.... whatever..... jon.

To: Edward Boghosian who wrote (71283)	7/17/2002 10:06:31 PM
From: technologiste	Read Replies (3) \| Respond to of 74651

Microsoft never reported options as income of course. Obviously, if Microsoft had to report option grants as an expense, their reported profits would be much lower. Their actual profits, cash flow, balance sheet would be completely unchanged because option expense is a hypothetical or imaginary expense. Unlike most expenses, when options are expensed, no checks are written, no money changes hands. If you really want an answer to your question consult Microsoft's annual reports. All public companies in the U.S. include earnings numbers if options were expensed in their annual reports. The danger of expensing stock options is that it creates a dangerous link between the company's earnings and its stock price. Companies whose stock has a lot of volatility (up or down) would have bigger stock option expenses than those whose stock price is more stable, given identical grants. A company's earnings should be independent of its stock price. But by expensing stock options, a company's stock performance suddenly influences earnings, and earnings, as always, influence a company's stock price. Clearly with each influencing the other you have a unstable feedback loop which, rather than clarifying a company's performance and health, makes it practically inscrutable.