Copenhagen Stock Exchange - Focus: Prospective Employee Share Options – An Important Parameter In The Value Assessment Of Shares

Within the last 5-10 years, a rising number of companies have introduced options and other types of share-based compensation schemes to their employees. This is a staff cost, says Equity Analyst Rune Møller, Jyske Markets, in Focus no. 93, and thus it should be treated as such. It is quite immaterial whether the company finances its expenses using the overdraft facility or through the issuance of shares.

At present, expenses for employee share options are not entered in the income statement. In the Focus article Mr Møller illustrates how important it is that employee share options are reflected in comparisons of company profitability since they may have a significant impact on the financial results. Moreover, the article shows how important it is to include share options when assessing the value of shares – the calculations show that share options may account for well over one third of the market capitalisation.

The new accounting standard in the EU, IFRS 2, is expected to require that the share-based employee compensation expense shall be recognised as of 2005 – but so far nothing has been determined.

Read ‘Prospective employee share options – an important parameter in the value assessment of shares’ in Focus no. 93. Questions to the author may be sent to the e-mail address info@cse.dk until 28 October 2004.