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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (174597)	5/15/2003 10:23:53 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 186894

Are you effectively saying here that a stock or option grant carries with it a future obligation for the company to buy back stock? No Don, I am not. While future buyback is often a consequence (many large companies routinely repurchase stock), it is not a necessary consequence of dilutive transactions. I am explaining in very simple (over simplified) terms how we calculate the term "Fully Diluted Earnings". I am leaving a lot out. Because it would take a book to explain the calculation. One of the cited assumptions behind the treasury stock method of computing fully diluted EPS is that the proceeds of a dilutive transaction would be used to repurchase stock versus add to cash or other general corporate purposes. Kind of like one of the assumptions behind the method of computing the value of inventory is that it will all result in finished goods which will all be sold one day at full retail price. Or kind of like the intrinsic value method of valuing stock options granted with a strike at market price assumes they are worth zero! As far as the definition of profit, note that I am trying to write stuff in a conversational tone, rather than as an academic definition. In this case the description of profit is framed in the context of a company. The original definition was probably written in Chinese and wouldn't even have used the word "owner" or "shareholder". What remains true is the essence. If we are measuring profit of an enterprise, then it is the change in wealth generated by that enterprise for its owners. You will note that we do not subtract "Dividends" from earnings for exactly this reason. Dividends flow out to the owners, and although they reduce the wealth of the legal entity, they increase the wealth of its owners to the same amount, thereby having no effect on profits. John