Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Don Lloyd who wrote (64556)	9/14/2003 11:09:01 PM
From: Stock Farmer	Read Replies (2) \| Respond to of 77400

Don, your argument embeds a fallacy. Scenario 1: The company that is growing its cash hoard at 10 M$ but giving away 20 M$ in equity. Scenario 2: The company that is diminishing its assets at a rate of 10 M$ per year. Scenario 3: The company that is growing its cash hoard at a rate of 10 M$ per year without dilution. Two of these scenarios are equivalent in terms of the rate at which the company is increasing the wealth of its current shareholders. How about you pick which two and explain. After which we can return to the debate about whether to record the value of non-cash compensation as an expense or not.

To: Don Lloyd who wrote (64556)	9/15/2003 2:02:16 AM
From: PerryA	Read Replies (1) \| Respond to of 77400

A company that shows an annual loss of $10M on its P&L statement, no matter from where its expenses come from, would be expected to eventually run out money completely, depending on how much money it started with. However, this is not true for the non-cash compensation expense, as it adds money every year. Your comment actually highlights the distinction between financing and operating activity. The ability to finance losses is worth distinguishing from an inability to finance losses. Expensing options would not affect the cash flow statement that shows an ability to finance operating losses. Regards, PerryA

To: Don Lloyd who wrote (64556)	9/15/2003 4:50:28 PM
From: Kirk ©	Read Replies (2) \| Respond to of 77400

Bingo! It seems to me that one legitimate use of the P&L statement is to help distinguish a viable company from a non-viable one. To do this we simply assume that the current P&L report will be replicated into the indefinite future. In this case, a viable company would be one that shows a positive or zero profit and a non-viable company would be one that shows a positive loss. If a company issues options each year, earns $10M a year, pays a 5% dividend using those earnings and the stock price goes nowhere for 100 years, then the options it gives would expire worthless. The folks who want to expense options would have to account for the options losing value with time as they approached expiration. Would they then recommend the time decay be added back to company earnings? Would a company that got a tax break from when it issued the expensed option then have to pay the tax cut back if the options started to expire (as the decay in value is added as income)? I can see all sorts of monkey business that can be done to satisfy this farce. How could a company make plans if their P&L was determined by the stock price which is often disconnected from reality? You and Pete make some great points! BTW, as a shareholder, I'd like to see a table showing how dillution occurs as a stock I hold rises in price and more shares are "in the money." It is not a simple linear relationship to double earnings and the stock price doubles for the same P/E since the number of shares outstanding will go up with the price due to options exercise. Kirk