GRE analogy problem
China GDP number: politicians vs.
Corporate earning: executives stock options
Hint: the local officials pump up the GDP numbers so that they can get promoted; the corporate CEO/CFO pump up the earning number so that their stock options will be more valuable.
Of course in an ideal world, when the law is enforced, those kind of things will not happen.
I was reading the cash flow statement of CROX Q3 2007 10-Q. One thing caught my attention is the “Excess tax benefit on share-based compensation”, about $38.6 m for first 9 months of 2007, plus the “Exercise of stock options” $ 14 m., the total “Cash provided by financing activities” is $ 52 m, compared to the cash from operating activities for about $ 22 m.
This is a bit strange because normally we want the cash comes from operating activities, i.e., a company’s main business. For instance, in the case of Crocs, its main business is manufacturing and sale of Crocs sandles. It’s not a financial service company: a bank, or a lender of student loans something.
I did a little research on this topic. I found a paper written by Marc Siegel which describes what companies do these days to artificially boost cash flow statement (legally), and a newspaper article from Rocky Mountain News explains this a bit in plain English.
A thousand words 