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.

Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (4451)	4/12/1999 9:32:00 PM
From: Bill Shepherd	Read Replies (2) \| Respond to of 15132

RE: Stock options, employee salaries, etc..."Then the company can announce that they are doing stock buy back (and the stock would rise due to the announcement), but in reality all the are doing is to get the IOUs that they gave their employees (i.e. the options) and pay them for it. Am I making sense now?" Your initial hypothetical would certainly make operating earnings look impressive, in the short run. BUT, when the company executes the stock buyback (to gather shares for the employees) wouldn't that take real cash?? If so, that would be reflected in operating earnings. Isn't what were talking about just a timing thing? If so, then the accounting rules should be changed to make such activities appear "on balance sheet" rather than just in the financial statement footnotes, which is where they appear now, right? [I see Pete has addressed this question more completely...thanks, Pete!] Regards...Bill S

To: Sun Tzu who wrote (4451)	4/14/1999 4:36:00 AM
From: Carl R.	Respond to of 15132

Lets carry your example to the extreme in another respect: A company reports "income" of 50 million dollars and has 50 million shares outstanding. The shares sell for $25 each. They had issued options on 2 million shares. To prevent dilution, they buy 2 million shares at $25, using up their entire net income. What is their real net income? Is it $50 million, or $0. There is no money left for dividends, and no money left for growth. The book value is unchanged. The shareholders receive nothing. There is no difference in this case between this company and another that earns no income, but issues no options. Options issued should be reported as a deduction from income, no doubt about it. This would enable us to better tell which companies are really earning income for shareholder's benefit, and which are inflating the reported earnings by hiding employee salaries as options. Carl