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

To: rkral who wrote (62730)	1/19/2003 3:01:01 AM
From: hueyone	Read Replies (2) \| Respond to of 77400

Exactly. Well .. that is exactly what Boeing does when calculating "net cash provided by operating activities". Could it be because the company actually increased cash .. by more than the "net earnings" .. because of the non-cash stock-based compensation expense on the income statement? Hi Ron: Yes. Actual cash coming in and cash going out has to be reconciled on the cash flow statements in a formal manner regardless of whether some fellow like me tries to tinker with the definition of free cash flow, and I believe Boeing is correct to add back in stock option expense to arrive at "net cash provided by operating activities" on the cash flow statement when they have previously deducted stock option expense from net income. Free cash flow, on the other hand, is not a formal item on the cash flow statement, and in addition, it is a figure commonly used to evaluate performance of companies. The problem with this free cash flow figure when stock options are involved, similarly to the problem with earnings when stock options are involved but not expensed, is that this free cash flow number provides extremely poor cross company, cross industry performance comparisons with companies who do not heavily use stock options and tends to dramatically overstate these companies' performances in my opinion. Hence, I would either like to see folks stop touting free cash flow as a relevant performance measure for options laden tech companies, or on the other hand, tinker with the definition of free cash flow to make a more useful performance measure. However, seeing as how the words "cash flow" are included in the expression "free cash flow", it could well be problematic to sell a definition that deducts for a non cash item. Regards, Huey