{
  "id": 44271,
  "date": "2021-08-04T11:57:49",
  "date_gmt": "2021-08-04T15:57:49",
  "guid": { "rendered": "https:\/\/finance-able.com\/?p=44271" },
  "modified": "2025-12-21T16:56:39",
  "modified_gmt": "2025-12-21T21:56:39",
  "slug": "treasury-stock-method",
  "status": "publish",
  "type": "post",
  "link": "https:\/\/finance-able.com\/treasury-stock-method\/",
  "title": {
    "rendered": "Treasury Stock Method in 3 Steps \u2013 The Complete Guide"
  },
  "content": {
    "rendered": "\n<p style=\"font-size:18.5px\"><strong>Learn to use<\/strong> the <strong>Treasury Stock Method<\/strong> like a pro so you can <strong>use it on the job<\/strong> in <strong>Investment Banking, Private Equity, and Investment Management<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In this article, you\u2019ll see:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Why<\/strong> professionals <strong>use the Treasury Stock Method<\/strong>.<\/li>\n\n\n\n<li>The <strong>3-Step Process<\/strong> for the <strong>Treasury Stock Method<\/strong>.<\/li>\n\n\n\n<li>The <strong>difference<\/strong> between a Company\u2019s <strong>Basic Share Count<\/strong> vs. the <strong>Fully Diluted Share Count<\/strong>.<\/li>\n\n\n\n<li>How Options, Restricted Stock, and Convertibles affect the <strong>Fully Diluted Share Count<\/strong>.<\/li>\n\n\n\n<li>An <strong>example<\/strong> of the <strong>Treasury Stock Method<\/strong> for <strong>Foot Locker<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p class=\"yoast-reading-time__wrapper\"><span class=\"yoast-reading-time__icon\"><svg aria-hidden=\"true\" focusable=\"false\" data-icon=\"clock\" width=\"20\" height=\"20\" fill=\"none\" stroke=\"currentColor\" style=\"display:inline-block;vertical-align:-0.1em\" role=\"img\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M12 8v4l3 3m6-3a9 9 0 11-18 0 9 9 0 0118 0z\"><\/path><\/svg><\/span><span class=\"yoast-reading-time__spacer\" style=\"display:inline-block;width:1em\"><\/span><span class=\"yoast-reading-time__descriptive-text\">Estimated reading time: <\/span><span class=\"yoast-reading-time__reading-time\">1<\/span><span class=\"yoast-reading-time__time-unit\"> minute<\/span><\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n\n\n<div style=\"height:65px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tl-dr\" style=\"font-size:35px\"><strong>TL;DR<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>We <strong>need<\/strong> the <strong>Treasury Stock Method<\/strong> to calculate <strong>Fully Diluted Shares<\/strong>.<\/li>\n\n\n\n<li>The <strong>Basic Share Count<\/strong> reflects <strong>existing shares<\/strong>, whereas the <strong>Diluted Share Count<\/strong> reflects all existing shares <strong><u>plus<\/u><\/strong> potential new shares.<\/li>\n\n\n\n<li>The <strong>Treasury Stock Method<\/strong> allows us to <strong>convert Option Proceed<\/strong> dollar to <strong>new shares that we can add<\/strong> to the <strong>Basic Share Count<\/strong>. &nbsp;<\/li>\n\n\n\n<li><strong>In addition to Options<\/strong>, we have to <strong>account for<\/strong> the impact of <strong>Restricted Stock<\/strong> and <strong>Convertible Debt and Equity<\/strong>.<\/li>\n\n\n\n<li>The <strong>Treasury Stock Method<\/strong> has <strong>3 Steps<\/strong> which you can <strong>find in the Article below<\/strong>.<\/li>\n<\/ul>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-the-treasury-stock-method\" style=\"font-size:35px\"><strong>What is the \u2018Treasury Stock Method?\u2019<\/strong><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-1024x576.png\" alt=\"A stick figured confused about the whole range of topics related to the Treasury Stock Method.\" class=\"wp-image-44425\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-all-of-the-concepts-around-the-treasury-stock-method.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">The <strong>Treasury Stock Method<\/strong> (&#8216;<strong>TSM<\/strong>&#8216; or &#8216;<strong>Treasury Stock Approach<\/strong>&#8216;) captures the <strong>full impact<\/strong> of <strong>Options<\/strong> when we calculate a Company\u2019s <strong>Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Companies report<\/strong> their <strong>current<\/strong> (or \u2018<strong>Basic<\/strong>\u2019) <strong>share count<\/strong>, which <strong>reflects<\/strong> <strong>all<\/strong> <strong>existing shares<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">However, <strong>when we want<\/strong> <strong>to calculate<\/strong> a <strong>Company\u2019s<\/strong> <span class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/finance-able.com\/analyst-starter-kit\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Equity Value or<\/strong> <strong>Enterprise Value<\/strong><\/a><\/span>, we <strong>need to use<\/strong> the \u2018<strong>Fully Diluted<\/strong> <strong>Share Count<\/strong>.\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Fully Diluted Share Count includes <\/strong>potential shares from <strong>Options<\/strong>, <strong>Restricted Stock,<\/strong> and <strong>Convertible Securities<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In particular, the <strong>TSM allows us to add<\/strong> the <strong>impact of Options <\/strong>into the <strong>Fully Diluted Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As we\u2019ll see, we follow a <strong>slightly different process for<\/strong> adding in the impact of <strong>Restricted Stock<\/strong> and <strong>Convertible Securities<\/strong>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/how-to-calculate-fully-diluted-shares.gif\" alt=\"An image showing that we need the impact of options (using the Treasury Stock Method), warrants, restricted stock, and convertible securities to calculate FDSO\" class=\"wp-image-44227\"\/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">Professionals across <a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Banking<\/span><\/strong><\/a>, <a href=\"https:\/\/finance-able.com\/private-equity-vs-venture-capital\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Private Equity<\/span><\/strong><\/a>, and <strong><a href=\"https:\/\/finance-able.com\/hedge-fund-vs-mutual-fund\/\" target=\"_blank\" rel=\"noreferrer noopener\">Investment Management<\/a><\/strong><span class=\"has-inline-color has-vivid-cyan-blue-color\"> <\/span><strong>use the<\/strong> <strong>Treasury Stock Method<\/strong> <strong>every day<\/strong> to value Companies.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In particular, the <strong>Treasury Stock Method<\/strong> is <strong>critical <\/strong>for completing <strong>core analyses <\/strong>like <a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Discounted Cash Flow (&#8216;DCF&#8217;)<\/span><\/strong><\/a> and <a href=\"https:\/\/finance-able.com\/walk-me-through-an-lbo\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Leveraged Buyout (&#8216;LBO&#8217;)<\/span><\/strong><\/a> models. <\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>This article<\/strong> <strong>will show you<\/strong> how to <strong>calculate<\/strong> the <strong>number of shares outstanding<\/strong> using the <strong>Treasury Stock Method<\/strong>.<\/p>\n\n\n\n<div style=\"height:15px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:22px\"><em><span class=\"has-inline-color has-vivid-red-color\">The rest of the article will <strong>dive deep<\/strong> to give you the <strong>fullest possible picture<\/strong>. However, if you<strong> want to hop straight <\/strong>to the<strong> 3-Step Process <\/strong>for the<strong> Treasury Stock Method, click<\/strong><\/span><strong> <a href=\"#the-treasurer\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">here<\/span><\/a>.<\/strong><\/em><\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-columns containerwidth is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:100%\"><div class=\"kb-row-layout-wrap kb-row-layout-id44271_5998fb-5c alignnone wp-block-kadence-rowlayout\"><div class=\"kt-row-column-wrap kt-has-1-columns kt-row-layout-equal kt-tab-layout-inherit kt-mobile-layout-row kt-row-valign-top\">\n\n<div class=\"wp-block-kadence-column kadence-column44271_101201-b3 inner-column-1\"><div class=\"kt-inside-inner-col\">\n<h2 class=\"wp-block-heading\" id=\"h-want-to-learn-more-about-finance\" style=\"font-size:35px\"><strong>Want To Learn More About Finance?<\/strong> <\/h2>\n\n\n\n<p style=\"font-size:18px\"><strong>Ramp up faster with all of our (free) deep-dive articles in our<\/strong> <a href=\"https:\/\/finance-able.com\/analyst-starter-kit\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Analyst Starter Kit<\/span><\/strong><\/a>:<\/p>\n\n\n<div class=\" wp-block-kadence-portfoliogrid kb-blocks-portfolio-loop-block alignnone kb-portfolio-loop44271_0911b6-75 kb-portfolio-grid-layout-carousel kt-blocks-carousel \"><div class=\" kb-portfolio-grid-layout-carousel-wrap kt-post-grid-layout-carousel-wrap kt-carousel-arrowstyle-whiteondark kt-carousel-dotstyle-dark splide kb-blocks-portfolio-img-hover-zoomout kb-blocks-portfolio-content-hover-zoomin\" data-columns-xxl=\"3\" data-columns-xl=\"3\" data-columns-md=\"3\" data-columns-sm=\"2\" data-columns-xs=\"1\" data-columns-ss=\"1\" data-slider-center-mode=\"false\" data-slider-type=\"carousel\" data-slider-anim-speed=\"400\" data-slider-scroll=\"1\" data-slider-dots=\"true\" data-slider-arrows=\"true\" data-slider-hover-pause=\"false\" data-slider-auto=\"true\" data-slider-center-mode=\"false\" data-slider-speed=\"7000\" data-show-pause-button=\"false\" data-slider-gap=\"30\" data-slider-gap-tablet=\"30\" data-slider-gap-mobile=\"30\" data-slider-gap-unit=\"px\" data-item-selector=\".kb-portfolio-masonry-item\"><div class=\"kadence-splide-slider-init splide__track\"><ul><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"An image of a lightbulb with the text Unlevered Beta Formula\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/unlevered-beta-formula\/\" aria-label=\"Unlevered Beta Formula &#8211; Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Unlevered Beta Formula &#8211; Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"A lightbulb and the words Purchase Price Allocation\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/purchase-price-allocation\/\" aria-label=\"Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:45.138888888889%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"720\" height=\"325\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png\" class=\"attachment-large size-large wp-post-image\" alt=\": A stick figure answering an interview question with the title text &#039;Walk Me Through an LBO&#039; below\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png 720w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-300x135.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-400x181.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-624x282.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-50x23.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-100x45.png 100w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\" aria-label=\"Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><\/ul><\/div><div class=\"clearfix\" style=\"clear:both\"><\/div><\/div><\/div><\/div><\/div>\n\n<\/div><\/div><\/div>\n<\/div>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-basic-shares-vs-fully-diluted-shares\" style=\"font-size:35px\"><strong>Basic Shares vs. Fully-Diluted Shares<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\">As mentioned above, <strong>Companies<\/strong> have <strong>two share counts<\/strong>:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Basic Share Count.<\/li>\n\n\n\n<li>Fully Diluted Share Count.<\/li>\n<\/ul>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/the-difference-between-basic-vs-diluted-shares.gif\" alt=\"An image showing the difference between basic and diluted shares for a company. \" class=\"wp-image-44229\"\/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">To go <strong>from Basic Shares to Fully Diluted Shares Outstanding<\/strong> (or \u2018<strong>FDSO<\/strong>\u2019), we <strong>need to add<\/strong> the impact of three instruments:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li>Options.<\/li>\n\n\n\n<li>Restricted Stock.<\/li>\n\n\n\n<li>Convertible Securities.<\/li>\n<\/ol>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities.png\" alt=\"An image with the definitions for Options, Warrants, Restricted Stock, and Convertible Securities. \" class=\"wp-image-44236\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/options-vs-warrants-vs-restricted-stock-vs-convertible-securities-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<h3 class=\"wp-block-heading\" id=\"h-intro-to-stock-options-and-restricted-stock\" style=\"font-size:26px\"><strong>Intro to Stock Options and Restricted Stock<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Many companies<\/strong> <strong>offer<\/strong> their <strong>employees<\/strong> <strong>compensation<\/strong> in the form of <strong>Stock Options<\/strong> and <strong>Restricted Stock<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Employees<\/strong> typically <strong>earn<\/strong> the <strong>Options<\/strong> and <strong>Restricted Stock<\/strong> over a <strong>period of time<\/strong> called the \u2018<strong>Vesting Period<\/strong>.\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>When<\/strong> the <strong>Options<\/strong> or <strong>Restricted Stock<\/strong> \u2018<strong>Vests<\/strong>,\u2019 the <strong>employee<\/strong> is <strong>entitled<\/strong> to receive them.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-stock-option-basics\" style=\"font-size:22px\"><strong>Stock Option Basics<\/strong><\/h4>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options.png\" alt=\"An image and employer paying employees with Options which must be accounted for with the Treasury Stock Method\" class=\"wp-image-44233\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-options-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong>Stock Options<\/strong> <strong>offer<\/strong> the employees the \u2018<strong>Option<\/strong>\u2019 to <strong>buy Shares<\/strong> <strong>of Stock<\/strong> at a <strong>specific price<\/strong>, called the \u2018<strong>Strike Price<\/strong>\u2019 (or \u2018<strong>Exercise Price<\/strong>\u2019).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In other words, <strong>to receive<\/strong> the <strong>underlying Shares<\/strong>, the <strong>employee must pay<\/strong> to \u2018<strong>Exercise<\/strong>\u2019 the <strong>Option<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>In Finance, we use<\/strong> the <strong>Treasury Stock Method <\/strong>to <strong>add<\/strong> the <strong>new shares created <\/strong>when an <strong>employee exercises <\/strong>their <strong>Options<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-options-vs-warrants\" style=\"font-size:22px\"><strong>Options vs. Warrants<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Thus far<\/strong>, we have <strong>only mentioned<\/strong> <strong>Options<\/strong> and <strong><u>not<\/u> Warrants<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>There are differences<\/strong> between the <strong>two<\/strong>. But <strong>for the sake<\/strong> of the <strong>Treasury Stock Method<\/strong>, they are <strong>treated as one and the same<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">If you\u2019d like <strong>to dig deeper<\/strong> into Options vs Warrants, <strong>check out this <a href=\"https:\/\/www.stockinvestor.com\/37197\/warrants-vs-options-understanding-key-differences\/\" target=\"_blank\" rel=\"noreferrer noopener\">article<\/a><\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-restricted-stock-basics\" style=\"font-size:22px\"><strong>Restricted Stock Basics<\/strong><\/h4>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock.png\" alt=\"An image and employer paying employees with Restricted Stock\" class=\"wp-image-44234\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employer-pays-employees-with-restricted-stock-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong>Unlike<\/strong> <strong>with<\/strong> <strong>Options<\/strong>, <strong>when Restricted Stock vests<\/strong>, the <strong>employee<\/strong> <strong>receives<\/strong> <strong>new shares<\/strong>. They <strong>do not need<\/strong> <strong>to<\/strong> <strong>pay<\/strong> to receive the <strong>Shares<\/strong>. &nbsp;<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As we\u2019ll see shortly, <strong>both Options<\/strong> and <strong>Restricted Stock<\/strong> <strong>can add new shares<\/strong> to the <strong>Share Count<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\">As a result, they <strong>must be incorporated<\/strong> when <strong>calculating<\/strong> a Company\u2019s <strong>FDSO<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-convertible-debt-and-equity-basics\" style=\"font-size:26px\"><strong>Convertible Debt and Equity Basics<\/strong><\/h3>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments.png\" alt=\"An image showing a company issuing convertible debt and equity in return for lower interest or dividend payments\" class=\"wp-image-44231\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/company-issuing-convertible-debt-and-equity-for-lower-payments-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong>In addition<\/strong> to Options and Restricted Stock, <strong>two additional instruments<\/strong> can create <strong>new shares<\/strong>: <strong>Convertible Debt<\/strong> and <strong>Convertible Equity<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">To keep it simple, we\u2019ll <strong>refer to them<\/strong> as \u2018<strong>Convertibles<\/strong>\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Companies<\/strong> often <strong>issue <a href=\"https:\/\/finance-able.com\/the-difference-between-stocks-and-bonds\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Debt and Equity<\/span><\/a><\/strong> <strong>instruments<\/strong> that <strong>can convert<\/strong> into <strong>new Shares of Stock<\/strong> in the future.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>The buyers<\/strong> of these securities <strong>receive additional upside<\/strong> in the <strong>Equity <\/strong>of the <strong>Business<\/strong>. So, they <strong>typically require a <u>lower<\/u> Interest or Dividend rate<\/strong> in return.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>lower rate<\/strong> can be <strong>desirable<\/strong> to <strong>Companies<\/strong> with <strong>limited Cash Flow<\/strong> but with <strong>large growth potential<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that <strong>we\u2019ve laid out the basics,<\/strong> let\u2019s <strong>dive into Options<\/strong> to see <strong>how they increase <\/strong>the <strong>Share Count<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-impact-of-options\" style=\"font-size:35px\"><strong>The Impact of Options<\/strong><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are.png\" alt=\"A stick figure confused about how Stock Options can be calculated using the Treasury Stock Method\" class=\"wp-image-44238\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-options-are-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n<!-- This site is converting visitors into subscribers and customers with OptinMonster - https:\/\/optinmonster.com :: Campaign Title: Treasury Stock Method - Obfuscation -->\n<div id=\"om-vrjydkcwhgbtib4pomxu-holder\"><\/div>\n<script>(function(d,u,ac){var s=d.createElement('script');s.type='text\/javascript';s.src='https:\/\/a.omappapi.com\/app\/js\/api.min.js';s.async=true;s.dataset.user=u;s.dataset.campaign=ac;d.getElementsByTagName('head')[0].appendChild(s);})(document,130718,'vrjydkcwhgbtib4pomxu');<\/script>\n<!-- \/ OptinMonster -->\n\n\n\n<p style=\"font-size:18.5px\">As we said above, <strong>Employees receive<\/strong> <strong>Options<\/strong> as they <strong>Vest<\/strong>. Once an <strong>Option vests<\/strong>, it becomes \u2018<strong>Exercisable<\/strong>.\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\">However, <strong>just because<\/strong> an <strong>Option<\/strong> is <strong>Exercisable<\/strong> <strong>doesn\u2019t mean<\/strong> that it <strong>has value<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">For the <strong>Option to have any value<\/strong>, the current <strong>Price Per Share<\/strong> of the <strong>underlying Company\u2019s Stock<\/strong> must be <strong>above<\/strong> the <strong>Option\u2019s Strike Price<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">If the <strong>Share Price<\/strong> is <strong><u>above<\/u><\/strong> the <strong>Strike Price,<\/strong> the <strong>Option<\/strong> is \u2018<strong>In-the-Money<\/strong>\u2019 (or \u2018<strong>ITM<\/strong>\u2019).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">But, if the <strong>Share Price<\/strong> is <strong><u>below<\/u><\/strong> the <strong>Strike Price<\/strong>, the <strong>Option<\/strong> is \u2018<strong>Out-of-the-Money<\/strong>\u2019 (or \u2018<strong>OTM<\/strong>\u2019).<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/in-the-money-vs-out-of-the-money-options.gif\" alt=\"An image showing when options are in-the-money vs. out-of-the-money.\" class=\"wp-image-44228\"\/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong>Because <span style=\"text-decoration: underline;\">only<\/span> ITM<\/strong> instruments <strong>have value<\/strong>, we <strong>exclude OTM instruments<\/strong> from <strong>Treasury Stock calculations<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">With the<strong> Treasury Stock Method<\/strong>, we <strong>assume<\/strong> that <strong>employees Exercise<\/strong> all their <strong>ITM Options<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>When employees exercise<\/strong> their <strong>Options<\/strong>, they <strong>pay the Strike Price<\/strong> and <strong>receive shares<\/strong> in return and the <strong>Company receives<\/strong> the <strong>Option Proceeds payment<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>But now we have a problem.<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/employee-pays-to-exercise-options.gif\" alt=\"An animation showing an employee exercising their options and paying the employer.\" class=\"wp-image-44226\"\/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">The <strong>Options exercise<\/strong> <strong>increases<\/strong> the number of <strong>Shares<\/strong>, but the Company <strong>also received dollars<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>How do we add dollars to the Share Count?<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Read on to find out.<\/strong><\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-options-and-the-treasury-stock-method\" style=\"font-size:26px\"><strong>Options and the Treasury Stock Method<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">This is where the <strong>Treasury Stock Method<\/strong> calculations <strong>come into play<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Treasury Stock Method assumes<\/strong> that the <strong>Company<\/strong> takes all the <strong>option proceeds<\/strong> and <strong>repurchases shares<\/strong> in the <strong>Stock Market<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Repurchased Shares offset<\/strong> the <strong>new shares<\/strong> created by the <strong>Option Exercise<\/strong>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/assume-company-repurchases-shares-to-reduce-dilution.gif\" alt=\"An animation showing that the Treasury Stock Method assumes a Company uses the option proceeds to repurchase shares and reduce dilution.\" class=\"wp-image-44225\"\/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong>Now<\/strong> the <strong>Company can convert<\/strong> the <strong>Options proceeds<\/strong> into an <strong>equivalent<\/strong> number of <strong>repurchased Shares<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>total impact<\/strong> is:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>New Shares<\/strong> created at Exercise.<\/li>\n\n\n\n<li><strong><u>less<\/u><\/strong> the <strong>Shares Repurchased<\/strong> by the Company.<\/li>\n<\/ul>\n\n\n\n<p style=\"font-size:18.5px\">In the <strong>section below<\/strong>, we boil this entire <strong>Treasury Stock Method<\/strong> into <strong>3 simple steps<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"the-treasurer\" style=\"font-size:35px\"><br>The Treasury Stock Method in 3 Steps<br><\/h2>\n\n\n\n<p style=\"font-size:18.5px\"><strong>To calculate<\/strong> the <strong>impact of Options<\/strong> using the <strong>Treasury Stock Method<\/strong>, we can use the following steps:<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/three-steps-for-the-treasury-stock-method.gif\" alt=\"An animation showing the three steps for the Treasury Stock Method.\" class=\"wp-image-44230\"\/><\/figure>\n<\/div>\n\n\n<div class=\"schema-how-to wp-block-yoast-how-to-block\"><p class=\"schema-how-to-description\"><strong>3 Steps of the Treasury Stock Method in Detail<\/strong><\/p> <ol class=\"schema-how-to-steps\"><li class=\"schema-how-to-step\" id=\"how-to-step-1628076911661\"><strong class=\"schema-how-to-step-name\">Calculate the Option Proceeds for all In-The-Money Options.<\/strong> <p class=\"schema-how-to-step-text\">First, we calculate all of the money received by the Company when employees exercise their options. We calculate this by multiplying the number of new shares from In-The-Money Options by the &#8216;Strike Price&#8217; (or &#8216;Exercise Price&#8217;). <br\/><br\/>The total dollar value created (or &#8216;Option Proceeds&#8217;) is what the Company receives, but the dollars have to be converted into an equivalent number of shares.  <\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1628076979937\"><strong class=\"schema-how-to-step-name\">Assume the Company Repurchases Shares with the Option Proceeds.<\/strong> <p class=\"schema-how-to-step-text\">In this step, we assume that the Company aims to offset the new shares created by buying as many new shares as possible with the Option Proceeds. To reflect this we divide the Option Proceeds by the Price Per Share (or the Offer Price in an M&amp;A Scenario). <br\/><br\/>The result will be the total number of Shares Repurchased by the Company.<\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1628076997651\"><strong class=\"schema-how-to-step-name\">Calculate the Net New Shares by subtracting the Repurchased Shares from Incremental Shares created by the Option exercises.<\/strong> <p class=\"schema-how-to-step-text\">Finally, we need to calculate the Net New Shares created from the Option Exercises. To do this we take the total number of new shares created (from Step #1) when the employees exercise their Options. And then we deduct the Shares Repurchased (from Step #2). <br\/><br\/>This results in the Net New Shares that need to be added to the Share Count when calculating from Basic Share to Fully Diluted Shares.<\/p> <\/li><\/ol><\/div>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-treasury-stock-method-restricted-stock-and-convertibles\" style=\"font-size:35px\"><strong>The Treasury Stock Method: Restricted Stock and Convertibles<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\"><strong>We must mention<\/strong> here that the \u2018<strong>Treasury Stock Method<\/strong>\u2019 <strong>refers only<\/strong> to the <strong>Options mechanics<\/strong> above.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">But in this article, <strong>we aim to show <\/strong>you the <strong>full picture<\/strong> of how to <strong>calculate<\/strong> the <strong>Fully Diluted Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>To complete the picture<\/strong>, we <strong>need to add<\/strong> the impact of <strong>Restricted Stock<\/strong> and <strong>Convertibles<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-restricted-stock-impact\" style=\"font-size:26px\"><strong>Restricted Stock Impact<\/strong><\/h3>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is.png\" alt=\"A stick figure confused about Restricted Stock\" class=\"wp-image-44240\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-restricted-stock-is-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">As we said before, <strong>Restricted<\/strong> <strong>Stock Units (or \u2018RSUs\u2019) operate<\/strong> a little <strong>differently<\/strong> than <strong>Options<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As a result, the <strong>Restricted Stock Units <a href=\"https:\/\/finance-able.com\/accretion-dilution\/\">dilution<\/a> impact<\/strong> is a bit <strong>different<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Unlike with Option vesting<\/strong>, <strong>employees <span style=\"text-decoration: underline;\">immediately<\/span><\/strong> <strong>receive<\/strong> <strong>their shares when RSUs vest<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Because of this, the <strong>Basic Share count<\/strong> already includes the impact of any <strong>vested RSUs<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So, we <strong><span style=\"text-decoration: underline;\">don\u2019t<\/span> need<\/strong> to <strong>add<\/strong> <strong>Vested RSUs<\/strong> to the <strong>Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As <strong>we\u2019ll see later<\/strong> in the article, there are <strong>some instances<\/strong> where you <strong>include Unvested Shares.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">There are <strong>also RSUs<\/strong> with <strong>performance conditions<\/strong> called <strong>Performance Stock Units<\/strong> (or \u2018<strong>PSUs<\/strong>\u2019).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">We\u2019ll <strong>dig into both<\/strong> of these items <strong>in a bit<\/strong>. <strong>For now,<\/strong> let\u2019s <strong>move on<\/strong> to <strong>Convertibles<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-convertibles-one-step-vs-two-step\" style=\"font-size:26px\"><strong>Convertibles \u2013 One-Step vs. Two-Step<\/strong><\/h3>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are.png\" alt=\"A stick figure confused about Convertible Securities (Debt and Equity)\" class=\"wp-image-44237\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/Stick-figure-confused-about-what-convertible-debt-and-equity-are-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">There are <strong>two different ways<\/strong> to <strong>add the impact of Convertible Securities<\/strong> (again \u2018<strong>Convertibles<\/strong>\u2019) to the <strong>Share Count<\/strong> depending on whom you ask.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>The two methods are:<\/strong><\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong><u>One-Step If Converted Method<\/u>:<\/strong> Include if the <strong>Price Per Share<\/strong> is <strong><u>above<\/u><\/strong> conversion price (or the Convertible is \u2018In-The-Money\u2019).<\/li>\n\n\n\n<li><strong><u>Two-Step If Converted Method<\/u>:<\/strong> Include if the <strong>Price Per Share<\/strong> is <strong><u>above<\/u><\/strong> conversion price <strong><u>AND<\/u><\/strong> the <strong>transaction isn\u2019t Anti-Dilutive<\/strong>.<\/li>\n<\/ol>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-a-simple-convertible-debt-example\" style=\"font-size:22px\"><strong>A Simple Convertible Debt Example<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\">To begin, <strong>let\u2019s assume<\/strong> we have <strong>Convertible Debt<\/strong> with a <strong>Face Value of $1,000<\/strong> with the <strong>Option to convert<\/strong> into <strong>20 Shares of Stock<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In that case, the <strong>Conversion Price<\/strong> would be <strong>$50 Per Share<\/strong> ($1,000 \/ 20 Shares).<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-one-step-process\" style=\"font-size:22px\"><strong>One-Step Process<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>simple approach<\/strong> <strong>practitioners would often employ in practice <\/strong>is to <strong>include shares<\/strong> from the <strong>Convertibles<\/strong> if the <strong>Price Per Share of the Company exceeds $50 Per Share<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-two-step-process-the-if-converted-method\" style=\"font-size:22px\"><strong>Two-Step Process (the \u2018If-Converted Method\u2019)<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\">However, <strong>there\u2019s a more involved<\/strong> (but <strong>technically correct)<\/strong> <strong>two-step method<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">We\u2019ll keep this <strong>high-level here<\/strong>, but if you want to <strong>dig deeper<\/strong> into the <strong>If-Converted Method<\/strong>, check out this <strong><a href=\"https:\/\/thedailycpa.com\/what-is-earnings-per-share-part-2\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Article<\/span><\/a><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>If-Converted Method<\/strong> looks at the <strong>conversion impact<\/strong> of the Convertible <strong>versus<\/strong> the <strong>impact to Earnings Per Share<\/strong> for the Business <strong>post-conversion<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This is <strong>because<\/strong> a <strong>Company<\/strong> <strong>must pay<\/strong> <strong>Convertible Security holders<\/strong> either <strong>Dividends<\/strong> or <strong>Interest<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method.png\" alt=\"An image summarizing the if-converted method to determine whether Convertible shares should be included in the share count. \" class=\"wp-image-44232\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/diagram-for-the-if-converted-method-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<h5 class=\"wp-block-heading\" id=\"h-scenario-1-dilutive\" style=\"font-size:20.5px\"><span style=\"text-decoration: underline;\"><em><strong>Scenario 1: Dilutive<\/strong><\/em><\/span><\/h5>\n\n\n\n<p style=\"font-size:18.5px\"><strong><u>If<\/u><\/strong> the Company\u2019s <strong>Earnings Per Share<\/strong> go <strong><u>down<\/u><\/strong> after the conversion (i.e., the deal is <strong><a href=\"https:\/\/www.youtube.com\/watch?v=riiW3GYrWRI\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Dilutive<\/mark><\/a><\/strong>), then the current <strong><u>shareholders<\/u><\/strong> are <strong><u>worse off<\/u><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In this <strong>First Scenario<\/strong>, we <strong>assume<\/strong> the <strong>Convertible holders<\/strong> would <strong>Convert<\/strong>. So, we <strong>add<\/strong> the <strong>new shares<\/strong> to the <strong>Share Count<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"h-scenario-2-anti-dilutive\" style=\"font-size:20.5px\"><span style=\"text-decoration: underline;\"><em><strong>Scenario 2: Anti-Dilutive<\/strong><\/em><\/span><\/h5>\n\n\n\n<p id=\"h-conversely-if-the-company-s-earnings-per-share-goes-up-after-the-conversion-i-e-the-conversion-is-anti-dilutive-the-existing-shareholders-are-better-off\" style=\"font-size:18.5px\">Conversely, <strong><span style=\"text-decoration: underline;\">if<\/span><\/strong> the Company\u2019s <strong>Earnings Per Share<\/strong> goes <strong><u>up<\/u><\/strong> after the conversion (i.e., the Conversion is <strong><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/dilutive-antidilutive-securities\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Anti-Dilutive<\/span><\/a><\/strong>), the current <strong><u>shareholders<\/u><\/strong> are <strong><u>better off<\/u><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This <strong>happens when<\/strong> the Company is <strong>paying <\/strong>a <strong>large payment<\/strong> (Interest or Dividend) to <strong>current Convertible holders<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>In other words<\/strong>, <strong>after removing<\/strong> the <strong>heavy Convertible Debt<\/strong> or <strong>Interest or Dividends payments<\/strong> following the conversion, the <strong>current shareholders benefit<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In this <strong>Second Scenario<\/strong>, we <strong>assume<\/strong> the Convertible <strong>holders would not Convert<\/strong>. So, we <strong>do not add<\/strong> the <strong>new shares<\/strong> to the <strong>Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>In summary<\/strong>, the <strong>order for the Two-Step If-Converted Method<\/strong> is:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>Calculate<\/strong> the <strong>Conversion Price<\/strong> to see if the <strong>Convertible<\/strong> is <strong>In-The-Money<\/strong>.<\/li>\n\n\n\n<li>If the <strong>Convertible<\/strong> is <strong><em>In-The-Money<\/em><\/strong> <strong><u>AND<\/u><\/strong> the conversion is <strong><em>Dilutive<\/em><\/strong>, we <strong>include<\/strong> the impact of the <strong>new shares<\/strong>.<\/li>\n<\/ol>\n\n\n\n<p style=\"font-size:18.5px\">Let\u2019s now look at a <strong>real-life example<\/strong> of the <strong>Treasury Stock Method<\/strong>!<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-diluted-shares-calculation-example-nbsp-foot-locker\" style=\"font-size:35px\"><strong>Diluted Shares Calculation Example:&nbsp;Foot Locker<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\">Let\u2019s use the <strong>Treasury Stock Method<\/strong> (or &#8216;<strong>TSM<\/strong>&#8216;) to complete the <strong>Fully Diluted Shares calculation<\/strong> for <strong>Foot Locker<\/strong> as of their <strong>Q1 2021 <\/strong>filing (<strong>June 9, 2021<\/strong>).<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>To find the filings<\/strong> referenced below, you can visit <a href=\"https:\/\/www.sec.gov\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>sec.gov<\/strong><\/span><\/a> website or use a more advanced tool like <a href=\"https:\/\/www.bamsec.com\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>bamsec<\/strong><\/span><\/a>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Below are the items we\u2019ll need:<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares.png\" alt=\"An image-showing all the items needed to calculate convertible shares for Foot Locker\" class=\"wp-image-44246\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/all-of-the-items-needed-to-calculate-diluted-shares-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-diluted-shares-example-finding-basic-shares-for-foot-locker\" style=\"font-size:26px\"><strong>Diluted Shares Example: Finding Basic Shares for Foot Locker<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>First<\/strong>, we <strong>need <\/strong>to find Foot Locker\u2019s<strong> Basic Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">We <strong>can always<\/strong> find the <strong>Basic Share Count<\/strong> on the <strong><u>front page<\/u><\/strong> of the <strong>latest filing<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>latest filing<\/strong> will be <strong>either<\/strong> the <strong>10K<\/strong> (Annual Report) or <strong>10Q<\/strong> (Quarterly Filing) at <strong>different points<\/strong> in the <strong>year<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Below we can see the <strong>latest Basic Share Count<\/strong> is <strong>104 million<\/strong> on the <strong>front page<\/strong> of the <strong>10Q filing<\/strong>:<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-1024x576.png\" alt=\"An image showing the Basic Share Count data for Foot Locker\" class=\"wp-image-44449\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/adding-basic-share-count-from-Foot-Locker-latest-10Q.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-treasury-stock-method-finding-options-for-foot-locker\" style=\"font-size:26px\"><strong>Treasury Stock Method: Finding Options for Foot Locker<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Next<\/strong>, we <strong>need<\/strong> to apply the <strong>Treasury Stock Method<\/strong> to find the <strong>impact<\/strong> <strong>of<\/strong> Foot Locker\u2019s <strong>Options<\/strong> on the <strong>Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As we can see below, <strong>Foot Locker <\/strong>has <strong>Options data<\/strong> in its <strong>latest 10Q filing<\/strong>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-1024x576.png\" alt=\"An image showing the Stock Option data for Foot Locker\" class=\"wp-image-44448\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-options-from-latest-10Q-filing-for-Foot-Locker.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong><u>If<\/u><\/strong> the <strong>10Q didn\u2019t have any Options data<\/strong>, we would need to <strong>go back<\/strong> to the <strong>10K filing<\/strong> to find the data.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>disconnect<\/strong> between the <strong>10K<\/strong> and <strong>10Q<\/strong> dates is viewed as OK because this is the <strong>best possible answer<\/strong> <strong>given the information available<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-exercisable-or-outstanding-options\" style=\"font-size:22px\"><strong>Exercisable or Outstanding Options<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\">Note that <strong>in the filing<\/strong>, Foot Locker has <strong>three Options Counts<\/strong>:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>Outstanding<\/strong> \u2013 reflects all <strong>Options<\/strong> employees can <strong><u>earn in the future<\/u><\/strong>, <strong>including unvested Options<\/strong>.<\/li>\n\n\n\n<li><strong>Exercisable<\/strong> &#8211; reflects all <strong>Options<\/strong> that are <strong><u>currently vested<\/u><\/strong>.<\/li>\n\n\n\n<li><strong>Available For Future Grant<\/strong> \u2013 reflects <strong><u>all potential future Options<\/u> <\/strong>that Foot Locker could issue in the future. We can usually ignore this.<\/li>\n<\/ol>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Depending<\/strong> on the <strong>situation<\/strong>, we<strong> may use Exercisable<\/strong> <strong>or Outstanding options<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact.png\" alt=\"An image showing how to use the options data for Foot Locker to calculate the net impact of options to the share count using the Treasury Stock Method.  \" class=\"wp-image-44241\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/using-treasury-stock-method-formula-to-calculation-options-impact-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<h5 class=\"wp-block-heading\" id=\"h-non-m-amp-a-scenario-options\" style=\"font-size:20.5px\"><strong><span style=\"text-decoration: underline;\"><em>Non-M&amp;A Scenario: Options<\/em><\/span><\/strong><\/h5>\n\n\n\n<p style=\"font-size:18.5px\">In the past, for a <strong>normal-course<\/strong> (i.e., <strong>non-M&amp;A<\/strong>) analysis, we <strong>would <\/strong>use <strong>Exercisable Options<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>In<\/strong> <strong>recent years<\/strong>, many <strong>practitioners<\/strong> <strong>use Outstanding<\/strong> <strong>Options<\/strong> in <strong>Non-M&amp;A<\/strong> scenarios to be <strong>conservative<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This <strong>conservatism<\/strong> arises <strong>because Equity<\/strong> is a much <strong>larger<\/strong> <strong>component<\/strong> of <strong>compensation<\/strong> <strong>than in the past<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This is <strong>especially true<\/strong> in the <strong>Technology sector<\/strong> where <strong>Stock Options <\/strong>are <strong>often a large part <\/strong>of employee <strong>compensation<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Said differently, just a <strong>few years<\/strong> of <strong>additional Option vesting<\/strong> can make a <strong>BIG difference<\/strong> in the <strong>Share Count<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"h-m-amp-a-scenario-options\" style=\"font-size:20.5px\"><strong><em><span style=\"text-decoration: underline;\">M&amp;A Scenario: Options<\/span><\/em><\/strong><\/h5>\n\n\n\n<p style=\"font-size:18.5px\">In an <strong>M&amp;A scenario<\/strong>, we always use <strong>Outstanding shares <\/strong>based on the <strong>assumption<\/strong> that Foot Locker would <strong>need to pay its employees<\/strong> if the <strong>Company was sold<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Using <\/strong>the data from <strong>Foot Locker&#8217;s filings<\/strong>, we <strong>can now work <\/strong>through the <strong>3 Step TSM Process <\/strong>to <strong>calculate <\/strong>the <strong>net new shares from Options<\/strong>. <\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-treasury-stock-method-step-1\" style=\"font-size:26px\"><strong>Treasury Stock Method &#8211; Step 1<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>First<\/strong>, we need to <strong>calculate <\/strong>the <strong>Option Proceeds <\/strong>from <strong>Option Exercises<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Below <\/strong>we can see the <strong>results of those calculations<\/strong>: <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-1024x576.png\" alt=\"An image illustrating Step 2 of the Treasury Stock Method, which is Calculating repurchased shares\" class=\"wp-image-44463\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-1-option-proceeds-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-treasury-stock-method-step-2\" style=\"font-size:26px\"><strong>Treasury Stock Method &#8211; Step 2<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Second<\/strong>, we need to <strong>calculate the Shares the Company can Repurchase using <\/strong>the <strong>Option Proceeds<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Below <\/strong>we can see the <strong>results of those calculations<\/strong>: <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-1024x576.png\" alt=\"An image illustrating Step 2 of the Treasury Stock method, which is Calculating repurchased shares\" class=\"wp-image-44252\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-2-repurchased-shares.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-treasury-stock-method-step-3\" style=\"font-size:26px\"><strong>Treasury Stock Method &#8211; Step 3<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Third<\/strong>, we need to <strong>calculate the Net New Shares<\/strong> by <strong>deducting <\/strong>the <strong>Repurchased Shares <\/strong>from the <strong>new Shares <\/strong>created by the <strong>employee Option Exercises<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Below <\/strong>we can see the <strong>results of those calculations<\/strong>: <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-1024x576.png\" alt=\"An image illustrating step 3 of the Treasury Stock method, which is Calculating Net New Shares\" class=\"wp-image-44253\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/treasury-stock-method-step-3-new-new-shares.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p style=\"font-size:18.5px\">In the end, <strong>depending on the approach<\/strong>, the <strong>Option exercises created between 0.4-0.8 million new shares <\/strong>that must be <strong>added <\/strong>to the <strong>Share Count<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that we&#8217;ve pinned down Options, <strong>let&#8217;s move on to Restricted Stock<\/strong>. <\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-diluted-shares-calculation-example-finding-restricted-stock-for-foot-locker\" style=\"font-size:26px\"><strong>Diluted Shares Calculation Example: Finding Restricted Stock for Foot Locker<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">We also <strong>need to include<\/strong> the impact of <strong>Restricted Stock<\/strong> in the <strong>Share Count<\/strong> as well.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In the <strong>image below<\/strong>, we can see the <strong>Restricted Stock disclosure<\/strong> for <strong>Foot Locker<\/strong>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-1024x576.png\" alt=\"An image showing the Restricted Stock (or RSU) data for Foot Locker\" class=\"wp-image-44447\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker-100x56.png 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/pulling-restricted-stock-and-convertible-data-for-Foot-Locker.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-restricted-stock-units-vs-performance-stock-units\" style=\"font-size:22px\"><strong>Restricted Stock Units vs. Performance Stock Units<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\">Foot Locker has <strong>two types<\/strong> of <strong>Restricted Stock<\/strong>:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>Restricted Stock Units (\u2018RSUs\u2019)<\/strong> \u2013 vest based on the <strong><em>progression of time<\/em><\/strong>.<\/li>\n\n\n\n<li><strong>Performance Stock Units<\/strong> (\u2018<strong>PSUs<\/strong>\u2019)\u2013 vest based on the <strong><em>progression of time<\/em><\/strong> <strong><u>and<\/u><\/strong> the <strong><em>achievement of specific Company goals<\/em><\/strong>.<\/li>\n<\/ol>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Basic RSUs <\/strong>have been <strong>common<\/strong> for some time. But in <strong>recent years<\/strong>, far <strong>more Companies<\/strong> issue <a href=\"https:\/\/us.etrade.com\/knowledge\/library\/stock-plans\/understanding-restricted-performance-stock\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">PSUs<\/span><\/strong><\/a>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-vested-vs-unvested-shares\" style=\"font-size:22px\"><strong>Vested vs. Unvested Shares<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Unlike<\/strong> what we saw with <strong>Options<\/strong>, there\u2019s <strong>only one total<\/strong> for <strong>RSUs <\/strong>which is <strong>Nonvested<\/strong> (also called \u2018<strong>Unvested<\/strong>\u2019) Restricted Stock.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">There is <strong>only one total<\/strong> because <strong>all vested shares<\/strong> (especially traditional Restricted Stock) <strong>become shares upon vesting<\/strong> and are <strong>already<\/strong> included <strong>in the Basic Share count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Similar to<\/strong> what we just saw with <strong>Options<\/strong>, the <strong>approach<\/strong> to <strong>RSUs <\/strong>has <strong>changed over time<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count.png\" alt=\"An image showing how to add Restricted Stock to calculate fully diluted shares for Foot Locker.  \" class=\"wp-image-44235\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/incorporating-restricted-stock-into-the-fully-diluted-share-count-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<h5 class=\"wp-block-heading\" id=\"h-non-m-amp-a-scenario-restricted-stock\" style=\"font-size:20.5px\"><strong><span style=\"text-decoration: underline;\"><em>Non-M&amp;A Scenario: Restricted Stock<\/em><\/span><\/strong><\/h5>\n\n\n\n<p style=\"font-size:18.5px\"><strong>In the past<\/strong>, for <strong>non-M&amp;A<\/strong> scenarios, we would <strong>ignore Restricted Stock<\/strong> altogether since traditional <strong>Restricted Stock enters the Share Count<\/strong> right away.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Today, <strong>many practitioners<\/strong> <strong>include<\/strong> <strong><span style=\"text-decoration: underline;\">all<\/span> Unvested Restricted Stock.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">They<strong> include<\/strong> all Restricted Stock <strong>to ensure<\/strong> they <strong>capture<\/strong> the <strong>full potential impact to the Share Count<\/strong> for the <strong>same reasons<\/strong> discussed above <strong>with Options<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"h-m-amp-a-scenario-restricted-stock\" style=\"font-size:20.5px\"><strong><span style=\"text-decoration: underline;\"><em>M&amp;A Scenario: Restricted Stock<\/em><\/span><\/strong><\/h5>\n\n\n\n<p style=\"font-size:18.5px\">For <strong>M&amp;A analyses<\/strong>, similar to what we saw with Options, we <strong>assume<\/strong> that <strong>all unvested Restricted Stock<\/strong> <strong>vests<\/strong> with an <strong>Acquisition<\/strong>.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-diluted-shares-calculation-example-finding-convertibles-for-foot-locker\" style=\"font-size:26px\"><strong>Diluted Shares Calculation Example: Finding Convertibles for Foot Locker<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">A <strong>brief search<\/strong> of <strong>Foot Locker\u2019s 10Q filings<\/strong> shows that the <strong>Company<\/strong> <strong>doesn\u2019t have<\/strong> any <strong>Convertibles<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>So we can ignore Convertibles here.<\/strong><\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-diluted-shares-calculation-example-the-range-of-outcomes\" style=\"font-size:26px\"><strong>Diluted Shares Calculation Example: The Range of Outcomes<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Depending on <\/strong>the <strong>approach<\/strong> you take, you\u2019ll <strong>arrive<\/strong> at a <strong>different answer <\/strong>for the <strong>Share Count<\/strong>, as you can see below<strong>:<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method.png\" alt=\"An image showing Foot Locker\u2019s fully diluted share count in different scenarios using the Treasury Stock Method. \" class=\"wp-image-44250\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-of-share-count-for-foot-locker-using-treasury-stock-method-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">The <strong>difference<\/strong> in <strong>Share Count<\/strong> based on <strong>each approach <\/strong>can have a <strong>large impact <\/strong>on a <strong>Company&#8217;s <a href=\"https:\/\/finance-able.com\/how-to-value-a-business-made-simple\/\">value<\/a><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Below<\/strong> we use the <strong>different Share Counts<\/strong> above to <strong>calculate<\/strong> the <strong>Fully Diluted <\/strong><a href=\"https:\/\/finance-able.com\/enterprise-value-vs-equity-value\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Market Cap<\/span><\/strong><\/a> (Stock Price x Shares Outstanding).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As you can see, the <strong>difference<\/strong> in <strong>Fully Diluted Market Cap<\/strong> (or \u2018<a href=\"https:\/\/finance-able.com\/enterprise-value-vs-equity-value\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Equity Value<\/span><\/strong><\/a>\u2019) for Foot Locker is <strong><u>over $100 million<\/u><\/strong>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1280\" height=\"720\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method.png\" alt=\"An image showing Foot Locker\u2019s fully diluted market cap in different scenarios using the Treasury Stock Method. \" class=\"wp-image-44249\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method.png 1280w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-50x28.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/08\/summary-fully-diluted-market-cap-for-foot-locker-using-treasury-stock-method-100x56.png 100w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-wrap-up\" style=\"font-size:35px\"><strong>Wrap-Up<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Hopefully<\/strong>, you have a <strong>much better understanding<\/strong> of the <strong>Treasury Stock Method<\/strong> and the <strong>underlying idea behind<\/strong> the <strong>entire process <\/strong>for calculating<strong> a Company\u2019s Share Count<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>You can follow<\/strong> our <strong>3-Step Process<\/strong> for the <strong>Treasury Stock Method<\/strong> to <strong>calculate Fully Diluted Shares<\/strong> for any Company.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Treasury Method<\/strong> is <strong>critical to master for on the job success<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Investment Banking, Private Equity, and Investment Management <strong>professionals use<\/strong> <strong>the<\/strong> <strong>Treasury Stock Method every day<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Let us know if you have any questions in the comments below. We\u2019d love to hear from you!<\/strong><\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-related-links\"><strong>Related Links<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-yoast-seo-related-links yoast-seo-related-links\">\n<li><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide (2021)<\/span><\/strong><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/finance-able.com\/walk-me-through-an-lbo\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through an LBO in 6 Steps \u2013 The Ultimate Guide (2021)<\/span><\/strong><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/finance-able.com\/ltm-revenue\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">LTM Revenue (and EBITDA) in 3 Steps \u2013 The Ultimate Guide (2021)<\/span><\/strong><\/a><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-about-the-author\" style=\"font-size:35px\"><strong>About the Author<\/strong><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignleft size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"500\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg\" alt=\"Picture of Mike Kimpel, Founder of Finance|able\" class=\"wp-image-26350\" style=\"width:266px;height:266px\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg 500w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-300x300.jpg 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-100x100.jpg 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-150x150.jpg 150w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-50x50.jpg 50w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure>\n<\/div>\n\n\n<p class=\"has-normal-font-size\"><a href=\"https:\/\/finance-able.com\/about-us\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Mike Kimpel<\/mark><\/strong><\/a> is the <strong>Founder and CEO<\/strong> of <strong>Finance|able<\/strong>, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.<\/p>\n\n\n\n<p class=\"has-normal-font-size\">He is an <strong>Adjunct Professor<\/strong> in <strong>Columbia Business School&#8217;s <a href=\"https:\/\/business.columbia.edu\/heilbrunn\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Value Investing Program<\/mark><\/a><\/strong> and leads the Finance track at <a href=\"https:\/\/www.accessdistributed.org\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Access Distributed<\/strong><\/mark><\/a>, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-frequently-asked-questions\" style=\"font-size:35px\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1628076069264\"><strong class=\"schema-faq-question\"><strong><em>What is Treasury Stock Method?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\">The <strong>Treasury Stock Method<\/strong> is an <strong>approach<\/strong> that <strong>allows us to convert<\/strong> the <strong>Option Proceed<\/strong> dollars <strong>into<\/strong> an <strong>equivalent<\/strong> number of <strong>shares<\/strong> used to <strong>calculate Fully Diluted Shares<\/strong> for a Company.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1628076420212\"><strong class=\"schema-faq-question\"><strong><em>Why do we need the Treasury Stock Method?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\">When an employee <strong>exercises Options<\/strong>, the <strong>Option<\/strong> <strong>exercise adds<\/strong> <strong>new shares<\/strong> to the <strong>Basic Share Count<\/strong>. In return, the <strong>employer receives money<\/strong>, but there\u2019s a <strong>disconnect<\/strong> because we <strong>cannot add dollars<\/strong> to the <strong>Share Count<\/strong>. The <strong>Treasury Stock Method<\/strong> allows us to <strong>convert<\/strong> the <strong>Option Proceeds dollars<\/strong> into an <strong>equivalent number<\/strong> of <strong>shares<\/strong> to bridge the gap.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1628076515530\"><strong class=\"schema-faq-question\"><strong><em>What are Basic Shares vs. Diluted Share?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\"><strong>Basic Shares<\/strong> reflect the <strong>current shares<\/strong> in existence. <strong>Diluted Shares<\/strong> reflect all <strong>potential shares<\/strong> from <strong>Options<\/strong> (using the Treasury Method), <strong>Restricted Stock<\/strong>, and <strong>Convertible Securities<\/strong>.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1628076568611\"><strong class=\"schema-faq-question\"><strong><em>What happens when shares are diluted?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\">When <strong>shares are Diluted<\/strong>, the <strong>share count increases<\/strong>. The <strong>increased share count lowers<\/strong> the <strong>value<\/strong> available for <strong>each shareholder<\/strong>.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1628076614212\"><strong class=\"schema-faq-question\"><strong><em>What are Diluted Shares outstanding?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\"><strong>Diluted Shares Outstanding<\/strong> reflect the <strong>Basic Share Count<\/strong> plus any <strong>potential shares<\/strong>. The <strong>drivers<\/strong> of potential shares are typically <strong>Options<\/strong>, <strong>Restricted Stock<\/strong>, and <strong>Convertible Debt or Convertible Preferred Stock<\/strong>.<\/p> <\/div> <\/div>\n\n\n<div class=\"yoast-breadcrumbs\"><span><span><a href=\"https:\/\/finance-able.com\/\">Home<\/a><\/span> \u00bb <span class=\"breadcrumb_last\" aria-current=\"page\">Treasury Stock Method in 3 Steps \u2013 The Complete Guide<\/span><\/span><\/div><style class=\"advgb-styles-renderer\">.kb-table-of-content-nav.kb-table-of-content-id44271_da9c07-3f .kb-table-of-content-wrap{padding-top:var(--global-kb-spacing-sm, 1.5rem);padding-right:var(--global-kb-spacing-sm, 1.5rem);padding-bottom:var(--global-kb-spacing-sm, 1.5rem);padding-left:var(--global-kb-spacing-sm, 1.5rem);background-color:#f4f4f4;border-top:3px solid currentColor;border-right:3px solid currentColor;border-bottom:3px solid currentColor;border-left:3px solid 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            "text": "When an employee <strong>exercises Options<\/strong>, the <strong>Option<\/strong> <strong>exercise adds<\/strong> <strong>new shares<\/strong> to the <strong>Basic Share Count<\/strong>. In return, the <strong>employer receives money<\/strong>, but there\u2019s a <strong>disconnect<\/strong> because we <strong>cannot add dollars<\/strong> to the <strong>Share Count<\/strong>. The <strong>Treasury Stock Method<\/strong> allows us to <strong>convert<\/strong> the <strong>Option Proceeds dollars<\/strong> into an <strong>equivalent number<\/strong> of <strong>shares<\/strong> to bridge the gap.",
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                  "text": "First, we calculate all of the money received by the Company when employees exercise their options. We calculate this by multiplying the number of new shares from In-The-Money Options by the 'Strike Price' (or 'Exercise Price'). The total dollar value created (or 'Option Proceeds') is what the Company receives, but the dollars have to be converted into an equivalent number of shares."
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                  "text": "In this step, we assume that the Company aims to offset the new shares created by buying as many new shares as possible with the Option Proceeds. To reflect this we divide the Option Proceeds by the Price Per Share (or the Offer Price in an M&A Scenario). The result will be the total number of Shares Repurchased by the Company."
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