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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Richard Nehrboss who wrote (44497)1/25/1999 1:05:00 AM
From: Tim McCormick  Respond to of 132070
 
RN, you say "only 8%" , what's interesting about this is as the NASDAQ's price declines the percentage overstatement increases. As the absolute overstatement amount is static for historical earnings. Yet, If prices decline in the future the absolute overstatement amount declines as options go out of the money. Another interesting phenomenon is that as prices decline companies are required to pay cash and this lowers earnings and subsequently lowers earnings growth rates and forces PEs to contract further creating a circular implosion. Conversely, in the past with prices rising it allows less cash to be paid, thus overstating growth rates and creating PE expansion. The net effect is to increase volatility, and decrease the efficiency of valuation models. Tim



To: Richard Nehrboss who wrote (44497)1/25/1999 10:15:00 AM
From: Mike M2  Read Replies (2) | Respond to of 132070
 
Richard, I disagree with the 8% figure the true impact is far greater. The method MSFT chose understates. The study done by Andrew Smithers written up in Forbes May 18 1998 indicates a far greater impact. Accounting gimmickery allows you to manipulate results. As Peter singleton points out the pro forma stmt includes only the cost of options to hedge the cost of the esop. Bottom line is there are 429 million vested and unvested shares for esop compared with 2.5 billion shs outstanding. see article forbes.com Mike



To: Richard Nehrboss who wrote (44497)1/25/1999 11:33:00 AM
From: Knighty Tin  Read Replies (1) | Respond to of 132070
 
Richard, If esops are all you are counting, that may be true. But what about all of the other scams designed to "enhance" reported eps but have nothing to do with operating results?

MB


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