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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: slacker711 who wrote (125847)	12/5/2002 10:29:17 AM
From: Wyätt Gwyön	Respond to of 152472

If options have an obvious cost which can easily be accounted for....why wouldnt this situation work? if by "situation", you mean: why couldn't a co pay all its bills in options?, the answer is: the situation could indeed work, theoretically (as long as vendors agree to receive options in lieu of cash payment). in fact, that is the starting point of the argument. HOWEVER, what is ludicrous is if you IGNORE those options as having any cost to the company other than eventual EPS dilution if the share price rises. why? because you get the situation where a grocery store with 1% real-world margins is showing 100% margins because they have no cash costs. stock analysts will hype the co as the greatest co in the world--better than MSFT and QCOM--because of its high margins. as a result, it could become the only grocery store in the world with a PE of 1000x normalized earnings, trading at a PSR of 10x. the only way this absurdity can be avoided is if investors recognize that the co's real-world margins are not 100%. and the reason they're not 100% is that the options they issue to pay for things are a transfer of economic value which should be recognized as an expense on the income statement. the same situation obtains in the broad market, albeit in less hyperbolic form. this makes it appear that certain cos earn more than they do, and makes their margins appear higher than they really are. It seems that very ludicrousnous of the analogy suggests that the value of the options are nebulous. i'm sure glad the QCOM options i sold did not have nebulous value!