Stock-based compensation
AccountingDefinition
Equity grants (stock or stock options) used as employee compensation. Required to be expensed on the income statement (since 2006). Doesn't affect cash flow directly but DOES dilute shareholders.
Tech companies routinely "exclude" SBC from non-GAAP earnings, presenting an inflated profit picture. Sophisticated investors compare GAAP vs. non-GAAP and pay attention to dilution rates. Heavy SBC + buybacks at high prices = stealth value transfer from shareholders to employees.
Tech companies routinely "exclude" SBC from non-GAAP earnings, presenting an inflated profit picture. Sophisticated investors compare GAAP vs. non-GAAP and pay attention to dilution rates. Heavy SBC + buybacks at high prices = stealth value transfer from shareholders to employees.