7.1.5.a.i: Stock Options and Their Effect on Capital Structure

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Abstract

Stock Options and Their Effect on Capital Structure Reprint permission from and originally published in Deal Terms, Aspatore Books, All Rights Reserved. Brief Overview . . . Competitive stock option programs are an integral part of a private or public organization's compensation policy. As such, stock option programs are a significant part of a company's capital structure and an important part of the valuation discussion and analysis that investors undergo. As companies expand their headcount, their cash flow and, typically, capital needs increase for some period. Attendant with any increase in headcount presumably is the need to increase a company's option pool. The need for any increase in capital not only places dilutive pressure on a company's overall capital structure, but also erodes the percentage holding of employees who are members of a company's stock option program. Balancing Financing Needs with Competitive Best Practices The extent to which...