Treasury Stock Method
- 1. Determine the number of outstanding options that the company has issued on its stock that are “in the money,” meaning exercisable. For example, an option to purchase shares at $20 would be in the money if the shares were trading at $25, but not if the shares were trading at $18.
- 2. Find the total number of shares if all the in-the-money shares were exercised. (Add the current outstanding shares to the in-the-money shares.)
- 3. Calculate the proceeds the company would receive if all in-the-money options were exercised.
- 4. Determine how many of its shares the company could repurchase with the proceeds.
- 5. Subtract the number of treasury shares that the company repurchased from total number of shares (including in-the-money shares).
Example: Semi Conductors, a concierge service for truckers, has 1 million shares issued and outstanding. Semi’s stock currently trades at $30 per share. The company has 100,000 outstanding options to purchase its s