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

To: Stock Farmer who wrote (62744)	1/23/2003 8:56:50 AM
From: RetiredNow	Read Replies (2) \| Respond to of 77400

Hi all, looks like Cisco is suing Huawei. I wonder what it is about Chinese companies that think nothing of stealing IP. I remember Microsoft had alot of the same problems. I wonder if they still do. Anyway, here's the article: biz.yahoo.com

To: Stock Farmer who wrote (62744)	1/23/2003 6:31:08 PM
From: hueyone	Read Replies (1) \| Respond to of 77400

re: Free cash flow and Stock Options. In other words, shareholders are better off by the amount of wealth created by the company (e.g. free cash flows), plus the amount of wealth preserved by the company by not paying taxes, minus the amount that insiders scamper away with, minus the amount paid out to folks who aren't shareholders any more (e.g. buybacks). All discounted to present value. Sounds good to me John! A few more points about free cash flow: Is not free cash flow already "corrupted" if you will, by non cash items in cases where companies purchase capex with shares or pay employees with shares instead of stock options? In both these instances, I believe accounting rules require that companies value the shares and record the payment to employees as an expense on the income statement, and record the payment of shares for capex (plant, buildings, etcetera) as an investment expense in the investment section of the cash flow statement. I seriously doubt anyone adds these non cash, share based payments back into their free cash flow calculation. If Cisco or Intel purchased plant and equipment in Silicon Valley with shares this year, can you imagine them trying to tell shareholders that they really got these Silicon Valley properties for "free", and that they don't have any capital expenditures to deduct from their reported free cash flow numbers? LOL! I don't think so! In addition, I believe stock options themselves are counted against free cash flow in the case of a company buying a building with stock options, because I believe current accounting rules require that the company value those stock options to begin depreciating the buildings. I believe the same holds true if a company purchases another business with stock options. We can't just pretend that the company bought the buildings or the other businesses for "free", whether the the company uses cash, shares, stock options or 1,000 playmates from Hugh Hefner's Playboy mansion. So what is the logic behind counting capex purchased with stock options against free cash flow, but ignoring employee services that are purchased with stock options when calculating free cash flow? The truth is, there is no logic, and as I have maintained, free cash flow as currently calculated, that does not take employee stock option expense into account, is a very poor indicator of a company's financial status unless one understands exactly what this free cash flow is and isn't measuring. In addition, as I mentioned earlier, free cash flow is a very poor measure across industries and sectors when some companies are heavily employing stock options (thus inflating free cash flow) and other companies are not using stock options to inflate free cash flow. Of course this analysis hasn't even touched some other issues with regard to free cash flow as measured, such as that it can disappear into share buybacks to counteract dilution from stock options, and for that reason too, it is a poor measure of a company's financial health. I suspect this is what has happened at Oracle, but I need time to do a case study to confirm my suspicions. The bottom line is that I think you and I agree on the factors that need to be considered in valuing a company, but we are disagreeing on a more minor manner---when and where to deduct the factor of employee stock option expense. My contention is that free cash flow is already "corrupted" by non cash items--in the case of share based payments and in the case of purchasing capex with stock options. Free cash flow is already is not a pure cash measure. Thus deducting an expense for employee stock options from free cash would be entirely consistent with measures already in use. Best regards, Huey