afternoon mock Q68 example, exercise, afternoon, buying, net

Spongebob

can anyone give me some ideas what effects of buying back stocks has on net income and operating cash flow? Also what kind of effects does exercise an option have on the net income, operating flow and financial cash flow? An example is highly appreciated.

dcfox83

Buyback reduces net income and reduces cash from financing

Exercising an option reduces tax outgo and increases operating cash flow. (It'll increase financial cash flow if you record the tax in financing cash flow instead of operating)

If you let people exercise options (and do not buyback shares) it will negatively impact your EPS

Check out pg 595 in CFAI FRA book for example...

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smileyface is gonna clear the CFA L2 Exam on 5th June, 2011. And making this statement won't be a violation of Code of Ethics since its a fact. ;-)