Share Based Compensation Forecast

[mandylify]

Just wonder if you can help on my question. how should I deal with share based compensation? as they are non-cash item?


I'm trying to forecast for share based compensation for a company, let's say it has option plan A, B, C with strike price at 5, 10, 15. if the stock price is now 11. A and B will be in the money and that it can be exercised anytime, so I wonder if I calculate diluted shares, do I have include A and B # of shares after it has been exercise?


and for the future year SBC expense, how can I forecast it? say if there are 10 shr for each class, so expense could hv been 50, 100, 150 for each class. A+B will be 150 so that would be the SBC expense next yr? and for future year, how do I know SBC will be at what level? be good to have method to forecast that than just put a number below 150?

Any additional resources you can point me to will be appreciated too!!

[wsthost]

The official rules say to use Black-Scholes which takes into account numerous factors that affect option pricing other than price differential.
You would have to have a model for Black-Scholes. We think that is unncessarily complex and non-value added.

As a shortcut we would suggest to either calculate historical SBC as a % of total comp. If total comp is not available then you have to make an estimate for how many new options are provided to mgmt and then make an estimate of future stock price. You can estimate the future stock price by using the same calculation for share buybacks per our Advanced Financial Model - Core Model class. For the former, number of new options, take a look at the option footnote. Then apply treasury method of shares outstanding to calculate economic dollars and use that figure. Pls note that that would be a VERY simplifying assumption.

Recall that SBC is just an accrual item embedded within, say SG&A. it would be a cash flow item on CFO (positive). So you can further proxy for it by doing % change or $ change off CFO.

Hope that helps!