http://www.billparish.com/msftfraudfacts.html

This guy says that Microsoft has used their cash reserves and fraudulent accounting to disguise the fact that they are losing quite a bit of money. I don't know whether its true or false, but considering that Microsoft has just been added to the Dow, its very interesting.

-- John Ainsworth (ainsje00@wfu.edu), November 01, 1999

Answers

Accounting is not a "pure science".

Businesses follow "reasonably accepted accounting standards". Expert opinions may vary regarding how to account for a specific item. EX: Unexercised stock options - are they an asset, a liability, a liability that requires 100% set aside, a 100% set aside in the current quarter?

Many NASDAQ listed firms take a more liberal interpretation than NYSE listed firms. This does not mean that one is right or the other wrong - just that expert opinion varies. This is also why tax attorneys are paid very well.

-- Bill P (porterwn@one.net), November 01, 1999.

When the next bear market arrives, many of these abuses will be corrected. Investors will be angry about the misleading information that has been fed to shareholders over the last several years. Unfortunately, most market analysts are not doing their job and are not analyzing the financial statements in an effective manner. Investors are going to be very angry at those who have been responsible for all the hype of the last few years.

-- Danny (dcox@ix.netcom.com), November 01, 1999.

Fraud is any extremely strong term, and it has a very specific legal meaning. I'm no friend of Microsoft, but what they're doing comes simply under the heading of "sharp dealing": pushing the envelope of what is and is not acceptable. It's hardly as hard over into illegality as Mr. Parish makes it out to be.

That said, I have to agree with Danny's comment. These sort of practices get straightened out when the winds shift. The next long bear market will get all sorts of lawyers involved, and we should see stock options get a very, very tough going-over. No one wants to upset anything right now and get blamed for a down market, but once a downtrend is clear, that will provide plenty of cover for the legal hordes to descend.

-- Mac (sneak@lurk.hid), November 01, 1999.

Sharp accounting practices. Sharp business ("competitive") practices. Sharp marketing practices. Crapola software. It all fits.

-- A (A@AisA.com), November 01, 1999.

This was the subject of a previous thread, which I cannot find. The basis of the argument is how stock options are treated - generally accepted accounting principals do not measure the correct cost to the company of stock options. MS uses stock options as payment, and if their cost were calculated correctly, they would be losing money instead of showing a profit, which might tend to depress the value of their stock. (But who knows these days?)

-- kermit (colourmegreen@hotmail.com), November 01, 1999.

That's the MS culture, and IBM used to be just as formidable back in its heyday. The computer industry was made up of "Big Blue and the Seven Dwarfs", (extra credit: name those other seven companies as of January, 1980), and woe unto you if you got on their bad side. They were a big ol' beast, and you challenged them at your peril.

Fast-forward to 1990: IBM becomes just another player in the computing industry, now dominated by Microsoft with some help from Intel.

FF again to today: Access to the Internet seems to be the essential need for the majority of PC users, and Gateway is looking into deploying PCs that don't need Windows to function. We'll see how this sorts out.

Times change, and the pace is picking up. Note: hitting a "bump in the road" may not be such a minor event...

-- Mac (sneak@lurk.hid), November 01, 1999.