Stock Based CompensationSimilar to D&A, you will not see a separate line item identifying SBC on the I/S.Instead found on cash flow statementSBC is imbedded within the operating expenses in which the employee is classifiedSoftware engineer – R&DCorporate manager – SG&AFactory supervisor – COGS What happens when a company compensates an employee with
stock options or restricted stock?
SBC ExampleAccrual accounting suggests that the SBC is recognized in the same period as it is earned.A company pays a sales person a salary of $100,000 and stock options valued at $50,000 that vest over 5 years.$110,00 of SG&A will be recognized even though only $100,000 was spentThe extra $10,000 is a non-cash expense
Google’s footnotes on “other income”Note: Marketable securities are mark-to-market. (Does not follow historical/initial cost principle)
Tax ExpenseThe tax expense companies recognize on their income statement does not equal that actual cash taxes they have to pay for the same period.