§ 01
| Perspective | SBC Is... | Why |
|---|---|---|
| GAAP accounting | An expense on the income statement | Reduces reported earnings |
| Cash flow statement | Added back (non-cash expense) | No cash left the company |
| Shareholder value | A real cost via dilution | More shares = each existing share worth less |
§ 02
Some tech companies report strong 'adjusted earnings' by excluding SBC. But if a company pays $1B in stock compensation, that is $1B of value transferred from shareholders to employees. It is real.
§ 03
Look up a tech company like GOOG or META. Check the **SBC expense** in the financials. Compare it to net income. Is it material?
§ 04
§ 05
A tech company reports $500M net income, $200M of which is stock-based compensation (SBC) added back to calculate non-GAAP earnings. Is $700M the true earnings?
Five questions · AI feedback
Sit with the ideas.
Company A reports $500M operating cash flow but has $200M in stock-based compensation. What is the 'true' free cash flow after accounting for SBC as a real cost?
Why: