Carl, “revised quarterly earnings” I made a few notes from the following article and will leave it up to you to come up with a "revised" quarterly earnings per share figure for expensing the stocks options.
A quote from the article “Even in the absence of malicious behavior, because varying assumptions can be made as to the time to expiration [16] and the stock’s volatility, reported Black–Scholes option values for different firms will be to some extent incomparable Nonetheless, this value is then amortized over the estimated term of the option.”
heritage.org
A) options are reported as a compensation expense,the fair value method,
1) At their grant date, options are valued using an approved valuation model, typically the Black– Scholes model. [15]This formula is one of the most complex in finance and includes the following variables:
a) current price of the stock, the exercise price of the option, an assumed risk-free rate of return, the volatility of the stock’s returns, and the time to expiration.
b) this value is then amortized over the estimated term of the option.
c) For each year, the annualized portion is charged to compensation expense with a corresponding credit to equity. But this expense is a non-cash expense and is added back to net income to arrive at the firm’s net cash flow.
B) Since the true value of the option will not be known until the exercise date, an accounting mechanism is needed to correct for any differences in the estimated and actual values. To allow for this discrepancy, the company accrues a deferred tax asset throughout the term of the option. If the option value turns out to be different from the originally estimated value, the accounts are adjusted accordingly.
C) Even in the absence of malicious behavior, because varying assumptions can be made as to the time to expiration [16] and the stock’s volatility, reported Black–Scholes option values for different firms will be to some extent incomparable. Nonetheless, this value is then amortized over the estimated term of the option.
Can of worms?
Herb |
