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

To: PerryA who wrote (64568)	9/15/2003 2:54:17 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Exactly. Stock-based compensation is identical to cash compensation paid for by equity financing. Cash comp of 10 M$ financed by issuing 10 M$ worth of equity is the same as 10 M$ worth of equity comp when it comes to operating results or sustainability of the business model. From an operating results basis, the 10 M$ worth of comp is necessary to achieve operating results. If it isn't necessary then management shouldn't be giving it out and injuring shareholders. If it is necessary to achieve operating results, clearly it is a wage cost: a cost of collecting revenue which therefore belongs properly recorded amongst operating expenses. From a sustainability basis, as long as there is someone willing to trade 10 M$ cash for some number of issued shares, the company can either finance 10 M$ worth of operating expense by issuing shares, or find employees willing to take these shares in lieu of 10 M$ cash compensation. This is true whether or not the operating costs to be financed exceed revenues. The converse is also true. At least in theory, if everyone is behaving rationally. In practice, ignorance can usually be effectively monetized.