As a simplified example, where SBC is issued as RSU's and all RSU's vest in the same year. Assumptions: Shares Outstanding before RSUs: 10,000; SBC= 1000 RSU's at Fair Value per Share: $2 = 20,000; RSUs Vested: 1,000; Net Income before SBC deduction: $100,000; and per share before dilution = 100,000 / 10,000 = 10;

Net Income after SBC deduction: $80,000; Adjusted Shares Outstanding = 11,000; and Net Income per share before dilution = 80,000 / 10,000 = 8; and Net Income per share after dilution = 80,000/11,000 = 7.27;

The net income per share after deducting SBC expense and accounting for the dilution from vested RSUs is approximately $7.27. But this is double counting, deducting both SBC in the numerator, and diluting the shares in the denominator? How is this accounted for in practice?

1 Answer 1


It's not "double-counting"; it's both a reduction of income and an increase in the number of shares outstanding.

If I have a company of 4 people and make $1,000, that's $250 per person. If I then add a 5th person and pay them $200, now the income is $800 divided by 5 people, or $160.

If a company has millions of shares outstanding and issues a few thousand in SBC, the effect on the denominator is less significant.

  • Thanks for the answer. Something I still don't understand from your example: You don't actually pay the 5th person anything - they just get shares. So it should be $1000 divided by 5 people = $200 per person.
    – Nelus
    Jun 2, 2023 at 9:19
  • 1
    I was trying to illustrate that both the numerator and denominator were affected, but it's not "double counting" - the fact that additional shares were added affects the denominator, the value of those shares affects the numerator.
    – D Stanley
    Jun 2, 2023 at 13:51

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