Help Modeling Question
I'm relatively new to three statement modeling and I'm having an issue modeling out common stock. The company I'm building the model for went public around 10 years ago and is up almost 10x from the ipo. Because of this, the common stock balance on their balance sheet is very low compared to the actual market cap of the company. The company has buyback program in place in which they plan to spend $8 billion on buybacks however, the companies common stock balance is only 3 billion. For my last few models, I would just subtract the amount of the buyback from common stock but upon review this does not seem like the correct way to do things because common stock should not be negative (3 billion minus 8 billion= -5 billion). Would appreciate some insights as to how to correctly model common stock in relation to buybacks and share-based compensation. Thanks
The $8B buyback program represents shares that are trading at the market value (their actual share price). Common stock on the balance sheet is listed at par value, usually something like $0.01 or $0.10 per share.
Share buybacks should be listed in a treasury stock account.
So to calculate the treasury stock would I do the following ($8 billion/(share price or estimated share price))*par value.
I'd also like to know how this scenario would be different if a company did not have a par value assigned to their shares. Thanks so much. Really appreciate your help.
Depends on how company recognizes buybacks due to corporation laws. Sometimes there's a treasury stock account valued at cost (designated buyback price or open market price * # of shares repurchased). Sometimes, common stock is deducted by (par value * # of shares repurchased) and APIC is deducted by (difference between par value and market price * # of shares repurchased). For companies that combine CS and APIC, it'd be the same as treasury stock value. Regardless, cash and total equity decreases by same amount.
So if CS & APIC are combined and thus buybacks are recognized at cost in the treasury stock account, the treasury stock account could conceivably be larger than the common stock account?
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