|
|
|
|
Valuing Stock Options and Other Equity-Based Compensation
Appraisal Economics can value stock options and other equity based compensation for various purposes, including:
Financial reporting, principally under SFAS 123R
Gift and estate tax valuations
Other tax-related purposes
We have extensive experience valuing all types of equity based compensation, from simple call options to more complex derivatives, including:
Straight stock options
Restricted stock
Stock options with accreting exercise prices
Profits units
Outperformance units
Contingent purchase price elements
We have valued instruments that are subject to vesting conditions including earnings targets, share price targets, total return targets and, of course, time-based vesting.
We apply a wide range of valuation techniques, including:
Closed form models such as Black-Scholes-Merton
Lattice models, such as a binomial model
Synthetic option modeling
Monte Carlo simulations
Valuing stock options and other types of equity-based compensation has become more important with the implementation of SFAS 123R. Commencing in the first fiscal year subsequent to June 15, 2005, all publicly traded companies are required to expense stock based compensation in accordance with SFAS 123R.
Generally, SFAS 123R allows the use of a Black Scholes model,
a lattice model, or any other model that meets three key criteria.
The model must: (i) be applied in a manner consistent with
the fair value measurement objective and other requirements
of SFAS 123R, (ii) be based on established principles of financial
economic theory as generally applied in that field and (iii)
reflect all substantive characteristics of the grant instrument.
It is important to note that certain types of performance conditions attached to equity-based instruments will trigger different types of accounting treatment. For example, target stock price conditions lead to fixed accounting treatment, in which the estimated fair value of the instrument is determined only as of the grant date, and its cost is amortized over the appropriate service period regardless of whether the conditions are subsequently met. Other performance conditions may lead to variable accounting treatment, in which the estimated fair value of the instrument is determined as of the grant date, but its cost is periodically adjusted to reflect subsequent performance.
Appraisal Economics can help establish appropriate inputs into the valuation process, regarding such issues as expected volatility, historical option exercise behavior, expected forfeitures, and estimated option lives. This information is fully supported by a detailed narrative report suitable for review by independent auditors, the Securities and Exchange Commission, and the Internal Revenue Service.
Whether you need a valuation of a complex derivative instrument
with a detailed narrative report or ongoing valuation of simple
stock options with minimal reporting, Appraisal Economics
can provide fully supported high quality work in a timely
and reliable manner.
|
|
|
© 2008 - Appraisal Economics Inc. All Rights Reserved. All trademarks are owned by the respective companies or Appraisal Economics Inc.
|
|
| | | | |
|
|
|
|
| | |
| | | |
|
| |
|
|
