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

To: Richard Nehrboss who wrote (44573)	1/25/1999 11:19:00 PM
From: Mike M2	Respond to of 132070

Richard, did you catch Earlie's point on the tax benefit derived from an item that does not show up as an expense on the income statement. To the extent it reduces taxes paid reported earnings are increased. This of course is in addition to compensating your employees without having the expense show up on the income statement. While there may be some legitimate issues with respect to how to determine the actual cost the current method treats options as if they have no cost. They do have a cost but shareholders don't care in a mania. Message 7472586 See the Forbes article that I linked I feel he did a splendid job explaining it. Somewhere I have a comparison earnings growth comparisons between the reported profits of companies and the National Income and profits accounts numbers published by the Commerce Department. Does anyone want to hunt it down on the Net?. Mike

To: Richard Nehrboss who wrote (44573)	1/26/1999 10:08:00 AM
From: Knighty Tin	Respond to of 132070

Richard, I am almost certain they will give you a misdirect answer. MB

To: Richard Nehrboss who wrote (44573)	1/26/1999 1:08:00 PM
From: Peter Singleton	Respond to of 132070

Richard, I haven't spent much time looking into this, but here are a couple of thoughts: 1 - There's no apples-to-apples comparison between ESOP shares and publicly traded securities. An ESOP share has the following characteristics: a - 10 year LEAP call at the price as of the day issued (what is that worth!?) b - vesting over a 4 year period (something on that order) c - claw-back provision for unvested shares upon ending employment for whatever reason d - favorable terms with respect to cash outlays upon exercise e - industry history of repricing options downward after steep share price decline 2 - Netting out the 5 factors above (dominated of course by the value of the effective 10 year LEAP call), the real value of the ESOP share grants each quarter has to be significant enough to render the reported earnings hugely overstated for most tech stocks, and effectively meaningless in terms of a value investor's ability to appraise real costs, revenues, earnings and cash flows. In other words, since the real earnings of these companies are a lot less than the reported earnings, the real P/E's are much higher than the reported P/E's. Net, net,the current, unreal, ahistorical valuations for tech stocks, are leveraged by an order of magnitude. And, ultimately, the real value of a share of a company, in the long-run, is a function of the risk-adjusted, discounted cash flows available to be assigned to the equity holder. Furthermore, eventually, the price will trend to this level ... and as high as it overshoots on the one hand, it may undershoot on the other. So, what does that mean? Will there be a hard reckoning? I suspect so, but my critical reasoning begins to shut down when I try to imagine a systemic response that would correct these asset prices. No joke. <ng> Peter