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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: bofp who wrote (62714)	1/17/2003 2:01:32 PM
From: hueyone	Read Replies (1) \| Respond to of 77400

Absolutely NOT! Cash flow is CASH. Ok, you can keep your operating cash flow, but free cash flow was developed as a measure of the internal, business performance of a company, and more specifically, as a measure of cash flow available that is theoretically avaialable to owners after reinvestment in the business (capex). However, when billions of dollars of free cash flow has to disappear from both retained earnings and shareholders equity into share buybacks simply in an effort to counteract dilution from stock options exercise---while only keeping long time shareholders even in their pecentage ownership of the company, free cash flow as you would measure it becomes an irrelevant measurement of the internal, business performance of these tech companies. Perhaps this is a good time to revisit the Charlie Munger tech fable: bluechipinvestorfund.com SNIP: For instance, it was mere child’s play for the executives to realize that if in 1982 Quant Tech had substituted employee stock option exercise profits for all its incentive bonus expense of $400 million, while using bonus money saved, plus option prices paid, to buy back all shares issued in option exercises and keeping all else the same, the result would have been to drive Quant Tech 1982 reported earnings up by 400% to $500 million from $100 million while shares outstanding remained exactly the same! And so it seemed that the obviously correct ploy for the officers was to start substituting employee stock option exercise profits for incentive bonuses. It seems very clear to me that many tech companies are merely living the Charlie Munger fable, and just like the Charlie Munger fable, this contrived, financial engineering that results in grossly overstated results has a chance of a very unpleasant ending. Regards, Huey