Comparable analysis on ralph lauren (Question on fully diluted shares outstanding)

Based on the most helpful WSO content, here are some insights on how to handle fully diluted shares outstanding (FDSO) and the inclusion of RSUs:

Key Points to Consider:

1. Basic Calculation of FDSO:

   • Basic Shares Outstanding: Start with the basic shares outstanding, which can be found on the first page of the 10-K.
   • In-the-Money Options & Warrants: Add any in-the-money options and warrants.
   • Convertible Securities: Include any in-the-money convertible securities.

2. Restricted Stock Units (RSUs):

   • Types of RSUs: RSUs can be service-based, performance-based, or market-based.
   • Vested vs. Non-Vested: RSUs typically operate on a vesting schedule. Non-vested RSUs should generally not be included in the FDSO calculation until they vest. However, if you want to be conservative, you might consider including them.

3. Treatment of RSUs:

   • Simple Addition: If you are simply adding the number of shares from RSUs, you should ideally include only the vested amount.
   • Treasury Stock Method (TSM): RSUs can be treated similarly to options using the TSM. This method accounts for the potential dilutive effect by assuming that the proceeds from the exercise of options are used to repurchase shares at the current market price.

4. Deriving the Dilutive Effect:

   • Dilutive Effect of RSUs and Stock Options: The dilutive effect mentioned (1.3 million shares) can be derived using the TSM. This involves calculating the net new shares from options and RSUs by considering the proceeds from the exercise price and the current market price.

5. Discrepancies in Basic Shares:

   • Time Differences: The difference in basic shares amount between the first page of the 10-K and the appendix could be due to timing differences, such as share buybacks or new issuances.

Steps to Include RSUs in FDSO Calculation:

1. Identify Vested RSUs: Determine the number of vested RSUs from the 10-K.
2. Apply TSM: Use the TSM to calculate the net new shares from RSUs. This involves:
   • Calculating the proceeds from the exercise of RSUs (if applicable).
   • Using these proceeds to repurchase shares at the current market price.
3. Add to Basic Shares: Add the net new shares from RSUs to the basic shares outstanding.

Example Calculation:

• Basic Shares Outstanding: 100 million (from 10-K).
• In-the-Money Options: 1 million shares.
• RSUs: 0.5 million vested RSUs.
• Net New Shares from RSUs (using TSM): Assume proceeds from RSUs are used to repurchase 0.2 million shares.
• Fully Diluted Shares Outstanding: 100 million (basic) + 1 million (options) + 0.3 million (net RSUs) = 101.3 million shares.

Conclusion:

To accurately determine the FDSO for Ralph Lauren, you should: - Include only vested RSUs or use the TSM for a more precise calculation. - Ensure you account for any timing differences in share counts due to buybacks or new issuances.

If you need further assistance, reviewing the specific details in the 10-K and applying the TSM method will help clarify the dilutive impact of RSUs and other securities.

Sources: DCF Modeling Course ~ Pre-training text.pdf, Bullet Proof Comps Recipe