tag:blogger.com,1999:blog-8152901575140311047.post8960468533418980919..comments2024-03-28T12:49:46.624-04:00Comments on Musings on Markets: Options and Taxes: Is a "Facebook" tax next?Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-8152901575140311047.post-29788499098418584732013-11-18T04:11:31.288-05:002013-11-18T04:11:31.288-05:00Your tax return will be checked and rechecked by o...Your tax return will be checked and rechecked by our computer software identifying potential problems the IRS may look at more closely and reviewing the math to limit IRS contacts. www.andestax.comAnonymoushttps://www.blogger.com/profile/02790902621542189052noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-88576283226224651022012-12-18T13:23:55.842-05:002012-12-18T13:23:55.842-05:00It seems very unusual for a company to continue to...It seems very unusual for a company to continue to go about issuing large amounts of additional shares of stock once the company has gone public.QUALITY STOCKS UNDER FIVE DOLLARShttp://www.manhattancalumet.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-84087507751064045122012-11-19T01:55:46.107-05:002012-11-19T01:55:46.107-05:00Facebook is one of top most thing, which is having...Facebook is one of top most thing, which is having infinity number of users. All people are using this one for popularity and entertainment purpose. No one exist without facebook account, with this we can also increase our business popularity.<br /><a href="http://www.cafranchiseopportunities.com/franchise-business" rel="nofollow">franchise business</a> Anonymoushttps://www.blogger.com/profile/02035299584559001367noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-55283127651254946772012-02-23T21:16:49.758-05:002012-02-23T21:16:49.758-05:00Maybe, he is building a $ 2 billion home...Maybe, he is building a $ 2 billion home...Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-76691739833889634462012-02-23T15:41:30.039-05:002012-02-23T15:41:30.039-05:00Excellent blog for even an non-management person l...Excellent blog for even an non-management person like me.<br /><br />What would be your unbiased rationale on Zuckeberg exercising his options?<br /><br />a)Increase the expenses, resulting in lesser corporate tax but wouldnt that result in lesser profit, lesser profit sharing with employees and stock holders (if they choose to offer dividends)? OR<br />b)Help US/California economy by cutting a 2Bil tax cheque OR<br />c)Expects facebook to tank (not exactly but somewhat like groupon) and wants to cash out before FB2K.Swaminoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-4416177340166610692012-02-13T17:01:44.567-05:002012-02-13T17:01:44.567-05:00Even apart from the accounting treatment of option...Even apart from the accounting treatment of options, the fact remains that Facebook will be a terrible investment post-IPO, especially at 100 billion valuation. As a Brit living in the States, I've never quite understood the fascination with Facebook. I also think that all of the value has pretty much already been sucked out of Facebook as a privately held company, as there does not seem to be much more upside with a 100 billion valuation. Compare this to when Google went public in 2004, where the upside was tremendous.farm land investmenthttp://www.greenworldbvi.com/alternative-investments-options/agricultural-farmland/noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-77285567502573183812012-02-13T03:48:45.333-05:002012-02-13T03:48:45.333-05:00"My colleague Dylan Evans has developed an on..."My colleague Dylan Evans has developed an online risk intelligence test that readers of your blog may find interesting. Dylan defines risk intelligence as the ability to estimate probabilities accurately, and his research has been featured in a number of blogs such as the Cassandra blog at the Economist (see http://www.economist.com/blogs/theworldin2011/2011/01/predictions_and_risk_intelligence) and Pharyngeal (see http://scienceblogs.com/pharyngula/2010/02/measure_your_rq.php). Dylan has discovered that people with high risk intelligence tend to make better forecasts than those with low RQ. Your readers can take the test for free by going to www.projectionpoint.com. Comments, criticisms and suggestions welcome."KYnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-13182023664488760492012-02-13T01:17:31.619-05:002012-02-13T01:17:31.619-05:00I love Corporate Finance Career and seems you will...I love <a href="http://careerguidance.com/corporate-finance-career.html" rel="nofollow">Corporate Finance Career</a> and seems you will help me, thanks aswanth and will contact you soon!@boseBosehttps://www.blogger.com/profile/09850162650223557313noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-24454980031632011042012-02-06T17:11:19.579-05:002012-02-06T17:11:19.579-05:00Professor,
Just wanted to express how much I appr...Professor,<br /><br />Just wanted to express how much I appreciate you making all of your hard work public, and of course free. When I found your site I immediately downloaded both the Valuation and Corporate Finance webcasts because it seemed too good to be true to get all that information for free. I’m a law student that should have gone into finance; however, I bought into value investing a while back and thought because of where I was in life I would never be able to apply the philosophy because I wouldn’t get the chance to really learn how to break down to numbers the values of companies-your website completely changed that. Seriously, thank you so much! And sorry this sounds like a late night infomercial announcement. I don’t mean it to, I just really am appreciative.<br /><br />AaronAAEShttps://www.blogger.com/profile/18104295739292861299noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-17901846651301915742012-02-05T17:15:20.174-05:002012-02-05T17:15:20.174-05:00Accounting guy,
You are absolutely right and I did...Accounting guy,<br />You are absolutely right and I did not mean to blow over your comments. In fact, I think that you are making a case that the accounting treatment of options prior to 2006 was not only inconsistent but also opaque, where investors really did not get an explicit bill for all of these options that were handed out to management. This, in turn, allowed boards to abandon their fiduciary responsibilities and be profligate with options and tech investors paid the price eventually.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-65525244092237293052012-02-05T13:34:19.515-05:002012-02-05T13:34:19.515-05:00I'm the Anonymous @2/5 7:16.
First, I apologi...I'm the Anonymous @2/5 7:16.<br /><br />First, I apologize for bogging down your very good blog (seriously!) on accounting issues. But I think this is an important topic and you're still giving a bad impression of the former rules.<br /><br />The former rules never showed any compensation ever. Not at grant date, not during the service period, and not at exercise. So it's not a matter of smoothing or timing issues. It's a matter of the expense never being recognized in any period in any form.<br /><br />Saying that the effect showed up in book value is true, but isn't helpful. That's because Book Value is the aggregate of Retained Earnings (equity generated by firm performance) and Contributed Capital (equity generated by shareholder contributions). The old rules overstate performance-related equity value (by not ever including the value in compensation expense) and understated contribution-related equity value (what the employees contributed in return for getting those options). Thus, if you're measuring the performance of the firm based on changes in total book value, you run into a Beardstown Ladies type problem that conflates shareholder contribution with firm performance.<br /><br />Worth noting is that the same is still true for convertible debt. GAAP understates the financing cost of issuing convertible debt because it doesn't recognize the expected loss in value upon conversion.Accounting guy 1noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-2337344529808392252012-02-05T12:45:08.282-05:002012-02-05T12:45:08.282-05:00I agree with TQS here , and I just had one more th...I agree with TQS here , and I just had one more thing to add. Because taxes are recognized when options are granted Facebook/ Zuckerburg will end up paying more taxes , while on the other side where Cisco granted options which would never be exercised Govt would not get their hands on any money. Which also means probably that Cisco might have taken higher tax deductions in earlier years which it would have to reverse ( Need to check that out ), and overstated earnings.Valuee Investor Team.https://www.blogger.com/profile/03189761586428458304noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-32887683207366428892012-02-05T12:07:10.019-05:002012-02-05T12:07:10.019-05:00The current tax treatment of options is no more a ...The current tax treatment of options is no more a loophole than the current tax treatment of salaries and wages. In both cases, the company has an expense that reduces taxable income, while the employee has income that is taxable.<br /><br />It is only the magnitude of this sample of one (Facebook and Zuckerburg) that Senator Levin (and others) finds appalling. But his opposition to this state of affairs only demonstrates his ignorance. By his logic, all employee pay expenses, including wages for the rank and file, deducted by corporations are a "loophole" and should be eliminated.<br /><br />Either Levin is an uninformed idiot (entirely possible) or he is being purposely divisive and populist to score political points. I'm not sure which is worse.<br /><br />If he wanted to attack a real tax loophole, he should go after the tax treatment of health insurance benefits. In the case of health insurance, the company deducts the expense, but the value of the benefit is not taxable to the employee. Now that is a real loophole! The proper reform would be to make the value of health insurance provided by companies taxable to the employee. When do you think we can expect the good Senator to take up this cause?TQShttps://www.blogger.com/profile/06065261001577819919noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-37380457669755449372012-02-05T11:48:31.929-05:002012-02-05T11:48:31.929-05:00Isn't Levin completely wrong about the governm...Isn't Levin completely wrong about the government not getting their little mitts on the tax income? Yes, Facebook gets the deduction, but Zuckerberg IS paying the taxes on those options. The Fed gov gets paid either way - in fact, at a higher tax rate as well. <br /><br />I don't understand what Levin is whining about. Does he want to make Facebook AND Zuck pay taxes on the same options?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-83063598468744759222012-02-05T10:28:24.830-05:002012-02-05T10:28:24.830-05:00Anonymous,
While it is true that they did not have...Anonymous,<br />While it is true that they did not have to record an explicit expense, they had to show the effect on their book value of equity. Thus, it had the same impact (though it was clearly not transparent) as recording an expense, reporting a loss and reducing your book value of equity. In fact, that was the other problem I had with pre-2006 accounting; the way in which firms reported the effects of exercise varied widely and you had to be a detective to find out what happened.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-70542396333487735602012-02-05T10:16:47.295-05:002012-02-05T10:16:47.295-05:00No need for a big accounting discussion - you just...No need for a big accounting discussion - you just got the older treatment wrong. There were 2 parts to your post:<br />1. Accounting at the grant: no expense recorded (because of options granted at the money). This was correct.<br />2. Accounting at exercise: you claimed the firm recognized an expense. They didn't. They never recognized any expense at the grant date, during the vesting period, or at exercise. <br /><br />It's now fixed, and the expense shows up properly in the period in which the employees earn that compensation (during the vesting period).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-80458006498612436592012-02-05T08:11:24.759-05:002012-02-05T08:11:24.759-05:00You are right. The accounting treatment is more co...You are right. The accounting treatment is more complex than what I have described and I largely chose not to go down that path, because a discussion of FASB 123 or its international analog would have sucked the energy out of this discussion, which is really about the tax treatment. However, my point is that the accounting treatment of options now reflects the expensing when granted convention, rather than expensing when exercised.<br />As for the accounting treatment making earnings more volatile and betas higher, accounting rules cannot make firms safer or riskier. They can either reflect the true riskiness or not. Now, they do, whereas prior to 2006, they did not.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-31006574592527465642012-02-05T06:55:11.682-05:002012-02-05T06:55:11.682-05:00so the current tax treatment makes good times bett...so the current tax treatment makes good times better and bad times worse for companies...ie betas are higher and idiosyncratic returns are pulled from a more volatile distribution. <br /><br />However, it seems like companies would like to pay out more options under a countercyclical tax policy, possibly increasing the company's risk. <br /><br />These forces seem to work in opposite directions- a pro-cyclical tax treatment of options could be offset by less use of options, making the net effect on firm risk uncertain...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-5862100386581705432012-02-05T06:54:15.599-05:002012-02-05T06:54:15.599-05:00An interesting topic but the description of the ac...An interesting topic but the description of the accounting impact is either incorrect or confusing. <br />From the Famous French Accountant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-28125927276212489702012-02-04T21:47:36.101-05:002012-02-04T21:47:36.101-05:00Very confusing article. One glaring problem is th...Very confusing article. One glaring problem is that you fail to distinguish the accounting and tax treatments for the two primary types of options .... ISOs and NQSOs.Anonymousnoreply@blogger.com