medium · Investment Banking accounting
If a company has 50 million basic shares, 100M of Net Income, and 10M of SBC expense (40% tax rate), how is CFO affected by the SBC?
- CFO is $10M higher than Net Income because SBC is added back as a non-cash charge.
- CFO is unaffected, since the SBC expense is classified as an investing activity outflow.
- CFO decreases by $6M, reflecting the after-tax cost of the compensation expense.
- CFO rises only $4M from the tax shield, while the $10M expense itself is otherwise ignored entirely.
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