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

To: Lizzie Tudor who wrote (62930)	2/5/2003 3:20:33 PM
From: GVTucker	Read Replies (2) \| Respond to of 77400

Of course Black Scholes isn't perfect. But it is a reliable estimate of an option's value. And until someone can find a more reliable method, Black Scholes should be used to estimate the cost to the company as a compensation expense. I truly don't see why this is controversial. It isn't as if it will affect the company's cash flow. We're only trying to get an accurate picture of how much money a company is making, and all expenses should be included. If you don't like that expense, take it out. I don't see anyone howling over depreciation expense, but that is even more inaccurate than Black Scholes. It is an ESTIMATE. GAAP accounting is FULL of estimates. Bad debt expense. Allowance for doubtful accounts. Revenues (say, for example, percentage completion method). It goes on forever. To say that Black Scholes shouldn't be used because it isn't a 100% accurate method of calculating option expense is basically akin to asking that all of GAAP be thrown out, and everyone should go to cash accounting.

To: Lizzie Tudor who wrote (62930)	2/5/2003 3:23:34 PM
From: paul_philp	Read Replies (1) \| Respond to of 77400

I think expensing is double counting and dilution is really the only result of options but not being a financial person I might be missing something. The counter to the 'it's all in the dilution' argument is the opportunity cost argument. An option granted could (theoretically) be offered to the public for cash, this is a real opportunity cost and dilution doesn't take it into account. It is this opportunity cost that I believe should be counted as the exense of options. Paul