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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: DavesM who wrote (325636)	12/4/2002 3:08:23 PM
From: DuckTapeSunroof	Respond to of 769670

Re: "If stock options are in part used to pay employees, shouldn't granting stock options be considered a business expense? Aren't stock options considered as income for employees?" >>> Of course it should be considered a business expense: it is! The IRS gives a deduction for this expense, the same as it would if salary was paid, or shares of stock given instead of stock options. >>> The problem is twofold: >>> 1). It is not reported as an expense on balance sheets. When you factor in the equity dilution of all those stock options issued by MSFT... for several recent years they have NO earnings, something investors might want to know. (Of course, not having to pay taxes always helps... and cash in the bank is still cash in the bank.) >>> 2). The reason primarily given for stock options is that they 'tie the employee into the performance of the company'... but they don't. If the options stay underwater the employee can walk away from them. They are only 'tied into the performance' if the stock price continues to rise higher than the grant price... which is a strong incentive to goose the earnings figures and make it appear that the company is doing better than it is. >>> If you want to 'tie the employee into the performance of the company', if you want to 'incentivize' them, just give them SHARES OF STOCK, not options on shares. >>> That way, it's properly counted as an expense on balance sheets (the stock watering is not hidden from the investors) and the employees are 'tied into the company's performance' whether the stock goes up or down. >>> With options (most go to upper management) they aren't 'tied in' at all... they can walk away from the consequences of bad management. It's a rigged lottery wheel. Re: "I suppose that Microsoft could tell the world that they made no money for each quarter, while in their financial statement, (each quarter) they've got a Billion dollars more in the bank (give or take)-with no debt. In the quarter ending Sept30, 2002, the Company had $13.6 B in long term investments, $35.1 B in short term investments, and $5.3 B in cash ( $54 Billion in cash and investments). For the quarter ending June30, 2002; the company had $1.1B in Cash 37.6 B in short term investments and $14.2 B in long term investments ( $52.9 Billion)." >>> Cash is still cash. Ain't Monopolies great? And, paying no taxes always helps the cash position. The average corporate effective tax rate in the U.S. for our 10,000 largest corporations was 20% in 1999. (Having a 1/5 advantage on the rest of the corporate world does help.) >>> Remember though, MSFT has 7 operating divisions. Only 2 (Windows and Office) are profitable, and they subsidize the others. If the two cash cows ever come under serious competitive attack which reduces their profitability... then cash in the bank may have to finance things a while. Re: "How do you evaluate a company that makes no money every quarter, but adds a couple billion in cash and short term investments (money market and t-bills) each quarter?" >>> That's a very good question. One could argue though that MSFT is managed for the benefit of those holding stock options, not really the investors... since the stock continues to be watered regularly, and no dividends are paid on that immense cash hoard.