"Effects of other dilutive securities" what does this mean?
I'm seeing this line item but have no idea what it means. Can anyone point to a primer or full few pages on understanding this? Or just offer a couple lines here? Thank you very much.
Check this out.....
http://econ.ucsb.edu/~anderson/136b_chapter16.pdf
Or if you want something more in depth, try...
https://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwher…
If you’re talking about what I think you are, I think it mainly has to do with in the money options held by employees.
Thanks, that link has a lot of good stuff it will take me a while to read. \
Yes - I am thinking it is where you would record an increase in options issued by a company, but for options that are in the money but not yet exercised?
Let me know if this sounds right
Are you seeing it on a company's financials, like next to a diluted EPS number? The above links are good but to give you a TLDR, it usually takes into account any potentially dilutive securities the company has outstanding, like convertible debt for example, and includes these securities in the share count calculation (and removes any associated interest expense from the NI line).
Yes.... so let’s talk about big daddy Elon. He was given 20.3M in stock options a couple of years ago.
If he attains certain benchmarks, he is given blocks of options 1.7M at a time. While he is holding the options, he has the option to exercise them and would be prone to do so with they are ITM. When this happens, the companies shares outstanding will increase, resulting in a dilution of EPS and other multiples (not that multiples mean anything for Tesla ha).
This increase has the potential to meaningfully impact certain multiples if there are large option blocks being exercised. Thus, companies get ahead of this in their filings and make it clear to the reader the potential impact if the options are to be exercised.
If you look in a companies Proxy Statements you should find information in executive compensation including outstanding options, bonus pay, other incentive based compensation, etc.
Hope that all makes sense.
Here is an article on Elon’s options agreement.
https://amp.cnn.com/cnn/2020/07/10/investing/elon-musk-tesla-payday/ind…
Yes, this makes tons of sense, thank you very much. My only follow up is: in this line item, do you only record ITM options? Or OTM options as well? Thanks!
I am not 100%... I’m sure it can be found in that FASB link. But I would assume that you would only include ITM options because there would be no incentive to exercise if they are OTM. The option contract holder would be better off buying the shares in the open market.
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