How does SBC expense impact the three financial statements?
Specifically RSU-based comp for larger, public tech companies (e.g., FAANG).
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Answer 1 should be fine for any interview and answer 2 is what it is in actuality.
Assume 20% tax rate
Answer 1: basic version where SBC is treated as cash-tax deductible
IS:
OpEx: +100
Pre-Tax Income: -100
NI: -80
CFS:
NI: -80
SBC: +100
Net Change in Cash: +20
BS:
Assets:
Cash: +20
Liabilities + Equity
Net Income: -80
SBC: +100
Answer 2: SBC is non-cash-tax deductible (this is what it is in real life)
IS:
OpEx: +100
Pre-Tax Income: -100
NI: -80
CFS:
NI: -80
SBC: +100
DTA: -20. (DTA increases by 20 and this reduces the cash flow hence the minus sign)
Net Change in Cash: 0
BS:
Assets:
Cash: 0
DTA: +20
Liabilities + Equity
Net Income: -80
SBC: +100
Thanks! Could you elaborate why a DTA is created in this case? Also, is this the impact to the financials over time or starting from day 1? E.g., for a cohort of 100 employees who receive equity compensation, is this what the impact to my financials would be starting from their first day of employment?
I hope you don't mind if I throw another question at you: what is impact to three financial statements if you purchase a building?
I'm assuming answer will differ based on if they mean on day of purchase (i.e. no depreciation, so its all CF and BS movement) vs. 1 year after purchase (e.g., depreciation on IS, impact to CF, impact to BS, etc.). Do you mind sharing how would you lay this out mathematically?
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