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The treasury stock method is a way for companies to compute the number of additional shares that can possibly be created by un-exercised, in-the-money warrants and stock options. These new additional shares can then be used in calculating the company’s diluted earnings per share (EPS). The treasury stock method implicitly assumes that the proceeds the company receives from in-the-money option exercises are then used to repurchase common shares in the market. Repurchasing those shares turns them into treasury stock, hence the name.
Treasury Stock Method Formula:
Additional Shares Outstanding = Shares from Exercise – Repurchased Shares
Additional Shares Outstanding = n – (n x K / P)
Additional Shares Outstanding = n (1 – K/P)
N = Shares from exercise
K = Strike price
P = Average share price for the period
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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
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CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
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