“Walk me through how you would calculate a company's fully diluted share count, including the treasury stock method for in-the-money stock options and the if-converted method for convertible securities.”
Walk me through how you would calculate a company's fully diluted share count, including the treasury stock method for in-the-money stock options and the if-converted method for convertible securities.
Task: determine the total diluted share count by testing each potentially dilutive security and adding only the shares that actually increase the count.
Here is the capital structure you're working with.
| Line Item | Value |
|---|---|
| Basic shares outstanding | 100.0m |
| Stock options outstanding | 8.0m |
| Weighted-average exercise price of options | $20.00 |
| Current share price | $25.00 |
| Convertible notes outstanding (face value) | $150.0m |
| Conversion price of convertible notes | $30.00 |
Net New Shares from Options = Options Outstanding − (Options Outstanding × Exercise Price) / Current Share Price
Using this formula, compute the net new shares created by the outstanding options.
As-Converted Shares = Face Value / Conversion Price; include only if Conversion Price is below the Current Share Price
Using this formula, determine whether the convertible notes should be included in the diluted share count.
Diluted Shares = Basic Shares + Net New Shares from Options + As-Converted Shares (only if dilutive)
Assume:
Using these inputs, compute the total diluted share count.
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