Let us start with shareholder's equity now.
- Project shares outstanding
- Reference back to historical count (flat-line)
Purpose: Need EPS (Earnings Per Share) for share repurchase
- Will factor in share repurchase later
- Calculate remaining line items:
- Leave interest expense / income blank
- Will complete later with interest schedule
A Simplified Equity Schedule
Equity Schedule – Overview
- Input selected historicals
- Share repurchase, option proceeds, and new shares from exercises options
- Dividends and future equity balance
- Full blown Equity Schedule Items and Flow
Flow of equity schedule:
Beginning equity balance
Add: Net income
Add: Issuance of shares
Less: Dividends paid
Less: Options Proceeds
Add/Less: Effects of exchange rates on cash
Share repurchase assumptions
1. Flow of share repurchase assumptions:
2.Current year EPS
3.Assumed current year EPS multiple
4.Project share price
5.Project shares repurchased
6.Multiply (3) and (4) to calculate the rupee amount in shares repurchased
ESOP (Employees Stock Ownership Plan) related assumptions
Treasury Stock Method (TSM)
a)The net of new shares that are potentially created is calculated by taking the number of shares that the in-the-money options purchase.
b)Then subtracting the number of common shares that the company can purchase from the market with the option proceeds.
c)This adds to total number of shares and lower EPS in future years.
Linking Equity Schedule
Link ending balances calculated in the shareholder’s equity schedule to the balance sheet.
Link repurchases, options, dividends to cash flow statement.
Equity Schedule & Cash-Flow
The highlighted region comes from the Equity schedule.
Equity Schedule & Balance Sheet
Calculating Shares Outstanding
1)Enter historical share information:
- Basic shares: actual and average
- Effect of options
- Diluted shares: average
2)Reference repurchases shares and new shares from exercised options:
- Calculate projected basic shares (actual)
- Calculate average basic and diluted shares
- Reference projected shares to Income Statement