Archive for category ownership
Particularly troubling stock options
Posted by admin in material costs, ownership, performance objectives, production cycles on September 7th, 2009
Stock options are particularly troubling. In theory, employees who own stock will work to make the price of the stock rise. Therefore they are given the right to buy shares at a discount. Unfortunately, when new stock is issued to employees who exercise their stock options, your interest is diluted. In some companies, you will find your interest cut in half in a few years. CEOs of large companies average $4 million a year in stock options.
In addition, studies show that the share prices of companies that issue large amounts of stock options underperform the market. Even worse, employees benefit when the stock price collapses. Stock options are repriced or new stock options issued so employees can dilute your interest at a fraction of the cost. You get no benefit from a stock price collapse.
The grant of stock options also increases the volatility of your shares. Stock options are only valuable if the price of the stock rises above the option price. If the value declines, the options are worthless, and employees will not spend money to exercise them. This gives employees an incentive to bet the company on risky ventures such as mergers, acquisitions, untested products, untested markets, untested technology, and untested corporate structures. Employee stock options are no benefit to you whatsoever.
Basics of accounting – part 1
Posted by admin in communication, financial information, incentive, liability, market demand, ownership, paperwork, understanding finances on August 3rd, 2009
Credits and debits come into play in double-entry or dual-entry accounting, a method by which each transaction is entered twice—once as a credit and once as a debit—on the balance sheet and/or the income statement. That’s how the financial statement stays in balance.
Credits always appear on the right-hand side of T accounts. They represent an increase in items such as business liability, owners’ equity, and revenue accounts, or a decrease in assets.
Debits are always listed on the left-hand side of T accounts. They represent an increase in asset and expense accounts, or a decrease in liabilities.
Understanding Debits and Credits – part 2
Posted by admin in Investment Opportunities, market demand, ownership, paperwork, profit margin, short-term income on August 3rd, 2009
Company financial operations also generate two other accounting statements:
Income statement—a summary of business revenue and expenses for a specific period of time.
Statement of owners’ equity—a record of the value or percentage of ownership held by individuals or firms with a stake in the business.
The primary purpose of all such statements is to help keep the company finances in balance. To that end, all debits must equal credits and all credits must equal debits when reflected on the balance sheet and income statement. If they don’t, the balance sheet won’t balance.
Your accountants may also generate another statement, for cash flow. We’ll discuss cash flow later; for now, all you need to know is that while the income statement and the statement of owners’ equity show the state of finances, the cash flow statement tells how the company reached that state. In essence, it accounts for how cash came in and how it went out.