Key Rule #8 Stock-based compensation

Question 1

Why do companies do stock-based compensation?

Answer 1

Decrease cash operating expenses
Incentivize employees to stay for long term.

Question 2

How will stock-based compensation affect statements?

Answer 2

Creates additional shares -> diluting existing investors -> cost the company something

Question 3

How will it cost anything?

Answer 3

It’s not cash-tax deductible, so if book taxes change, cash taxes may not change at all.