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

To: Dave who wrote (176302)	12/29/2003 6:51:28 PM
From: hueyone	Read Replies (1) \| Respond to of 186894

Remember, while stock options expensing will affect a company's net income, it will not have any affect on a company's Cash Flow from Operations. Imo, many companies currently incorrectly handle the accounting for stock grants on the cash flow statement, and likewise they will incorrectly handle expensing stock options on the cash flow statement once stock options are expensed. Stock grants are already currently expensed on the net income statement. For accounting purposes, compensating employees with any equity based compensation should be viewed as a two part transaction, both as a finance activity and an employee compensation activity, as if the company raised money by selling equity, and then turned around and paid the employee with the cash proceeds from selling the equity. Hence both net income and cash flow from operations should be reduced by the amount of the equity compensation, and cash flow from financing activities should be increased by the amount of the non cash equity compensation, thus balancing out the bottom line of the cash flow statement. To use an extreme example as Charles did, whereby employees are paid entirely in equity compensation, it is no less absurd to claim a resultant very high cash flow from operations as it is absurd to claim a very high net income with no employee expenses. Once stock options are expensed, however, I suspect there will be a number of companies touting heavily inflated cash flow from operations numbers, just as many of the those same companies are now touting heavily inflated net income numbers, and it will still be incumbent on the investor to discern the quality of these reported numbers if the investor has any interest in discerning the intrinsic value of the company. JMO, Huey