I'm reading The Intelligent Investor, commentary on chapter 11, and quote:
AOL Time Warner, for example, reported in the front of its annual report that it had 4.5 billion shares of common stock outstanding as of December 31, 2002. But a footnote in the bowels of the report reveals that the company had issued options on 657 million more shares. So AOL’s future earnings will have to be divided among 15% more shares. You should factor in the potential flood of new shares from stock options whenever you estimate a company’s future value.
My question is,
- If these options are issued on existing shares, it would already take
0.657/4.5=14.6%of AOL's earnings, why would the author emphasize it?
- If these options are converted to new shares, it should take
0.657/(4.5+0.657)=12.7%of AOL's earnings, but the author claims to be 15%.
Does anyone know what the author means?