NEW YORK (CNN/Money) - Is Microsoft more expensive than you think?

In its quarterly earnings report released Thursday, Microsoft said it expects earnings per share for the full fiscal year to be between 86 cents and 88 cents. (For more, click here.)

But analysts, according to First Call, expect $1.11, a full 24 cents higher than the mid-point of Microsoft's guidance.

Why the huge discrepancy?

Now that Microsoft (MSFT: down $2.18 to $26.73, Research, Estimates) is giving out restricted stock to employees instead of options, it must include those grants as a compensation expense, a direct hit to earnings that Microsoft estimates at 24 cents.

Use the Wall Street consensus estimate, and you get a P/E of 24 for Microsoft's stock. Treat the stock grants as a real compensation expense just like, say, salaries, and you get a P/E of 31 -- making the stock seem some 30 percent more expensive.

So which is right?

Some analysts say it's fair to gloss over the 24 cents per share impact because the restricted stock grants are not a cash expense and therefore do not affect cash flow.

"Microsoft is not paying out cash, and that's why we ignore it," said Kimberly Caughey, an analyst with Parker/Hunter.

Not everyone agrees.

"Look at the reported net income numbers," said Gregory Taxin, CEO of Glass, Lewis & Co., an independent research firm focusing on corporate governance issues. "These are real expenses since you are giving value to employees, and since this program is going to go on ad infinitum, it's inappropriate to exclude them."

And Ken Broad, manager of the Transamerica Premier Growth Opportunities fund, which does not own Microsoft, disputes the notion that the restricted stock is not a cash expense. Eventually, Broad argues, Microsoft will probably need to use cash to repurchase shares to keep the grants from diluting earnings.

In fairness to Microsoft, the company is not playing the pro forma earnings game that many other companies have been guilty of doing.

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Microsoft clearly stated that its earnings will be between 86 cents and 88 cents and that this estimate includes compensation expenses as opposed to saying that earnings will be between $1.10 and $1.12, excluding the expense.

That's a significant distinction, according to Taxin. "You have a company that is bending over backwards to ensure that all compensation costs are included in the net income number," he said. "This is encouraging for all of us that care about accounting performed with integrity."

So the fault for the earnings confusion lies more with Wall Street analysts.

"I find it a little bit comical that Microsoft is going with the lower number, which I applaud, and yet the analysts still want to stick to the see no evil, hear no evil, speak no evil, higher pro forma number," said Alex Vallecillo, portfolio manager for National City Investment Management Co., which runs the Armada family of funds.

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Vallecillo said he's looking at the lower net income figure and based on that, he doesn't think the stock is attractive, given its slow growth prospects. But he said he would look to buy shares if they fell to the $22 range, or about 25 times estimates that include the compensation expenses.

Then again, the intense focus on earnings exclusively might be a bit misguided. For a company like Microsoft, it may pay to look more closely at other metrics, like sales and cash flow, which are not affected by the compensation expenses.

Robert Becker, an analyst with Argus Research, said that the compensation costs are irrelevant when looking at Microsoft's valuation. "The most appropriate measure of valuation is cash flow that's returned to equity holders," he said.

Caughey and Becker own shares of Microsoft. Their firms have no investment banking relationships with the company.