Adjusted EPS, ROIC, ROA & ROE under SBC (Consists of only RSU) circumstances
Subject:
Adjusted EPS, ROIC, ROA & ROE under SBC (Consists of only RSU) circumstances
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Under USA GAAP, stock based compensation is treated as an expense, and the same treatment is required under IFRS (International Financial Reporting Standards)—specifically IFRS 2, Share‑based Payment. Both frameworks mandate that the fair value of stock options, restricted stock, and similar awards be recognized as compensation cost over the service (vesting) period.
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Comments :
Pre-requisite:
SBC contains RSU only, it does not contain share options.
SBC = RSU
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Damages and and confusions have been done by SBC (RSU) in P/L under GAAP & IFRS 2.
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Under GAAP/IFRS, the balance sheet ends up correct because the cash flow statement fixes it. The income statement remains “broken” (profits understated by SBC). So only the income statement has to be manually fixed – by manually adding back SBC × (1 – Tax Rate) by stock investor.
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Manual Adjustment :
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(A)
(1)
Adjusted EPS
= [ Net Income + SBC × (1 - Tax Rate) ] ÷ Total Shares (Diluted)
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(2)
Assume Definition:
ROIC = NOPAT ÷ (Total Equity + Total Debts)
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Then,
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Adjusted ROIC
= 100 × [ NOPAT + SBC × (1 – Tax Rate) ]÷ (Total Equity + Total Debts)
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(3)
Assume Definition:
ROIC = Net Income ÷ (Total Equity + Total Debts)
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Then,
Adjusted ROIC
= 100 × [ Net Income + SBC × (1 - Tax Rate) ] ÷ (Total Equity + Total Debts)
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(4)
Adjusted ROE
= 100 × [ Net Income + SBC × (1 - Tax Rate) ] ÷ Total Equity
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(5)
Adjusted ROA
= 100 × [ Net Income + SBC × (1 - Tax Rate) ] ÷ Total Assets
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(B)
Non-GAAP is a simplified adjustment which simply ignores and bypasses the Tax Rate :
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(1)
Adjusted EPS
= [ Net Income + SBC ] ÷ Total Shares (Diluted)
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(2)
Assume Definition:
ROIC = NOPAT ÷ (Total Equity + Total Debts)
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Then,
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Adjusted ROIC
= 100 × [ NOPAT + SBC ] ÷ (Total Equity + Total Debts)
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(3)
Assume Definition:
ROIC = Net Income ÷ (Total Equity + Total Debts)
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Then,
Adjusted ROIC
= 100 × [ Net Income + SBC ]÷ (Total Equity + Total Debts)
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(4)
Adjusted ROE
= 100 × [ Net Income + SBC ] ÷ Total Equity
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(5)
Adjusted ROA
= 100 × [ Net Income + SBC ] ÷ Total Assets
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(C)
In the Financial Report’s Operating Cash Flow Statement, SBC has already been added back under GAAP, so No Manual Adjustement shall be performed by the stock investors to the Operating Cash Flow.