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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Stock Farmer who wrote (29108)	2/23/2003 2:11:59 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

John, Thank you. I think we are now largely in agreement as to the facts, but may still differ on the interpretation. What if a very similar company REPORTS to us that it is earning $1 per share every year, but is able to do so ONLY because in another (related) transaction we (shareholders, plural) end up giving $2 per share to employees in cash after parting with 2% of the company? Is that the same value to us? We're down a buck a share when the dust settles. Is it the same value to us as calling it $0.98 per share (fully diluted)? But during the bubble days folks were quite willing to give such a company a "PE" of 100. I think it should be obvious that on an EPS or EPS(fully diluted) basis, a company that indulges in stock compensation APPEARS to increase the wealth of its owners far more than it does. There are two issues here. First, the shareholder or potential investor has no one to blame but himself if he chooses to ignore ongoing dilution. Secondly, the idea that accounting can or should be the basis for a comparison between two or more unique companies is a myth. If investors wish to compare different companies, it is their responsibility to pay for the necessary research. Accounting is paid for by the existing shareholders and should be concentrating on providing an accurate and truthful picture of the financial condition of the company under review, and no other. Accounting standards can never possibly be made to fit two different companies precisely, let alone all companies. In fact, the real purpose of accounting standards is to advantage the accountants, reducing their level of responsibility and allowing the employment of large numbers of accountants of mediocre ability required only to force square pegs into round holes. Companies who are able to convince employees to accept stock partly in lieu of cash ARE different than companies that cannot. Regards, Don