Todd and Jon,
Here's a crib sheet for the mentally challenged or just plain lazy.
1) Always use fully diluted shares because they represent all interested parties in all relevant transactions (i.e. bankruptcy and takeover) EXCEPT
2) Correct for double-counting.
For example, APM's convertible debs are counted against both fully-diluted shares AND long-term debt. Except in some higher branches of physics, nothing can exist in two states. The debs are either stock (equity) or bonds (debt), not both.
So, when APM's price was in the stratosphere, I would have x-ed out the long-term debt contribution of the debs, as I would assume full conversion. Today, however, I can safely assume that the debs will never be converted. So now I count the long-term debt liability, but not the dilutive effect.
Thus, for my purposes, I count APM's shares as [(fully-diluted) - (share equivalent of debs)] which should be roughly the same as primary. FASB's shift from primary to basic shares (in FY98) all but guarantees that the only shares worth looking at are fully-diluted ones. |
