Primary shares (in millions) 6,487.00 277.78
In-the-money options 591.00 25.61
Partially diluted shares 7,076.00 303.39
Value per share (partially diluted)$9.27 $106.09ForGoogle,thereisnoeffectfromtheadjustmentsinceallits
options arein-the-moneyatits stockpriceofalmost $300.
ForCisco,only 591 millionsharesarein-the-money(based
onthestockpriceof$17.67atthetimeoftheanalysis).In
fact, counting only vested in-the-money options at Cisco
would reduce the number of options considered to 441
million options and increase the value per share a little more.
Estimating Expected Option Exercises in the Future and
Building in Expected Dilution
Inthisapproach,weforecastwheninthefutureoptionswill
be exercised and build in the expected cash outflows
associatedwiththeexercise,byassumingthatthefirmwillgo
out and buybackstock to covertheexercise. Thebiggest
limitationofthisapproachisthatitrequiresestimatesofwhat
thestockpricewillbeinthefutureandwhenoptionswillbe
exercisedonthestock.Giventhatourobjectiveistoexamine
whetherthepricetodayiscorrect,forecastingfuturepricesto
estimatethecurrentvaluepershareseemscircular.Ingeneral,
this approach isneither practical nor particularly useful in
coming up with reasonable estimates of value.
Treasury Stock Approach
Thisapproachisavariantofthefullydilutedapproach.Here,
thenumberofsharesisadjusted toreflectoptions thatare
outstanding,buttheexpectedproceedsfromtheexercise(the