Reading the accounts
Share-based compensation
Also called SBC or Stock-based comp
Paying employees in shares or options rather than cash.
How it works
SBC is a real expense recognised on the income statement, and a non-cash one, which is why it is added back in cash flow statements and excluded from many adjusted profit measures.
It transfers value from existing shareholders to employees through dilution. The cost is genuine even though no cash leaves the company.
Where it misleads people
Excluding SBC from "adjusted" profit treats employee pay as free. For many technology companies it is one of the largest costs in the business, and the dilution it causes is permanent.
Related terms
- DilutionThe reduction in your ownership share when a company issues new shares.
- Adjusted earningsCompany-defined profit that excludes items management considers unrepresentative.
- Shares outstandingThe total number of a company’s shares currently held by all its investors.
- Share buybackA company buying its own shares in the market, reducing the number in issue.
More in Reading the accounts
- Tangible book value
- Runway
- Working capital
- Revenue
- Writedown
- Return on invested capital
- Accounts receivable
- Return on equity
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.