Interview Question – Lets say you're a company and you're paying your employees with all cash. Now you decide to pay them half with cash and half with stock compensation. How does this effect the three statements?
If somebody could walk me through this, that would be great.
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interested in hearing the answer for this. bump
BUMP!
I'll take a stab at it. If you assume all cash, it's like the normal problem and cash is down 0.6x and equity (RE) is down 0.6x (assuming a 40% tax rate and x as salaries expense). If x is half cash and half stock-based comp, then:
IS: salaries expense -0.5x and stock-based comp -0.5x, so NI is down 0.6x CFS: NI is -0.6x, add back stock-based comp of 0.5x, so cash is down 0.1x BS: cash is -0.1x, equity (RE) is -0.6x, and equity (common stock & APIC) is 0.5x, so the net effect is cash -0.1x and equity -0.1x and we are balanced
didn't goblan need to add back the depreciation in the CFS?
We were talking about stock-based comp here. It is treated the same as Depreciation and added back to CFO.
Is stock-based compensation included as expenses in the Income statement? At what value? If you give an employee 1000 shares, do you use the market value of 1000 shares then as the expense?
Tristan---yes SBC is an expense on the income statement. Goblan, I think you are right, at least that's how I would think through it.
Can someone explain goblan's further or in more detail please?
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