OWNER EARNINGS / LISTED COMPANIES / FREE TOOL
Share compensation, dilution and repurchases
Compare two compensation conventions and inspect how share issuance and buyback cash change the ownership denominator.
Part 7; Appendix 02 compensation treatments. New fictional arithmetic example; not NVIDIA or another issuer. Inputs are illustrative assumptions, not live prices or investment recommendations.
Your scenario, step by step.
Fictional teaching case · Illustrative annual period. Currency: KES; money and shares: million. Prices and per-share results use whole currency units per share. Percentage columns show percentages; discount factors are unitless.
Compensation treatments — alternatives, not additive deductions
| Treatment | Earnings proxy |
|---|---|
| Keep reported SBC expense | 77 |
| Add back SBC and deduct explicit cash replacement cost | 76 |
Share roll-forward and cash used
| Measure | Value |
|---|---|
| Opening shares | 50 |
| New shares issued | 2 |
| Shares repurchased | 2 |
| Closing shares | 50 |
| Net share change (%) | 0 |
| Cash used for repurchases | 12 |
| Expense-retained proxy / opening shares | 1.54 |
| Expense-retained proxy / closing shares | 1.54 |
Interpret the result.
The share roll-forward accompanies the expense-retained case. The cash-compensation alternative replaces award compensation and is shown separately; it does not inherit the same award issuance assumptions automatically.
Opening/closing per-share figures show denominator sensitivity. Neither is reported EPS, which requires the appropriate weighted-average diluted shares.
Buyback cash is a separate financing/capital-allocation use. It is not deducted again as an operating compensation expense. Issued shares, SBC accounting expense and repurchase cost need not match.
Formulae and symbol definitions.
Keeping the expense makes no SBC add-back. The alternative adds SBC back once and deducts explicit replacement cost once.
Keeping the expense makes no SBC add-back. The alternative adds SBC back once and deducts explicit replacement cost once.
Closing shares = opening shares + issued shares − buyback cash / repurchase price. Net dilution is closing / opening shares − 1.
Closing shares = opening shares + issued shares − buyback cash / repurchase price. Net dilution is closing / opening shares − 1.
| Symbol | Definition and units |
|---|---|
| \(E_{\mathrm{keep}},E_{\mathrm{replace}}\)Expense-retained / replacement earnings | Alternative annual owner-earnings proxies, currency units/year. |
| \(N\)N | Net income after the reported SBC expense. |
| \(A\)A | Other net owner-earnings adjustments, excluding SBC. |
| \(S,K\)S, K | Reported SBC expense and alternative cash replacement cost. |
| \(n_0,n_1\)n0, n1 | Opening and closing share counts on the selected scale; not weighted-average EPS shares. |
| \(n_{\mathrm{issued}}\)Issued shares | Additional shares settling during the period. |
| \(B,P\)B, P | Buyback cash on the selected scale and price in currency per share. |
| \(\delta\)δ | Net share-count change, displayed as a percentage. |
Read the research and workbook evidence.
Open the companion article →Existing FCFF/WACC valuation explorer · Detailed workbook library
Method background: Berkshire Hathaway’s 1986 owner-earnings discussion. Filings require accounting interpretation; these tools do not fetch SEC or NSE data automatically.