“Cheap Stock” or “Stock Option” Valuations
The Valuation Of Shares Or Options To Purchase Shares
Our reports help Boards of Directors and management evaluate transactions involving employee stock options. They also help companies determine an appropriate exercise price for each option. The exercise price should generally reflect the fair market value of the closely held shares on the date of the option grant.
Foxboro Consulting Group, Inc. (“FCGI”) has provided these valuation services for many dot com companies. We conduct appropriate studies to determine minority and controlling interests in closely held Internet companies. In addition, we consider the factors that can affect the value of common stock and stock options.
Many of these companies consider future strategic corporate development opportunities. These opportunities may include issuing common stock to the public. As a result, companies may need to disclose compensation paid to officers and employees. Such compensation can include non-cash amounts and stock options.
When a company grants stock options, the exercise price may differ from the fair market value of the underlying common stock. If the exercise price falls below the fair market value on the grant date, the difference may represent compensation for financial accounting or Securities and Exchange Commission reporting purposes. Companies may also need to disclose this amount in filings related to a public offering.
Foxboro Consulting Group, Inc. can determine the fair market value of common stock and stock options on the grant date. We can also provide valuation updates on a quarterly, semi-annual, or as-needed basis. In most cases, we offer succeeding valuations at a reduced fee.
Our Methodology
Valuing the common stock of a closely held corporation requires careful consideration of many factors. These factors can individually or collectively influence the value of the company and its shares. Our FCGI analysis considers the following areas:
- The minority interest character of the subject shares
- Terms and provisions of the shares under consideration
- Restrictions on the transfer of the subject shares
- Transactions in the stock
- The company’s history and management, the nature of its business, and factors affecting its business
- The financial condition of the company, historically and at the valuation date, and an analysis of its assets, invested capital, and book value
- The company’s historical operating results, particularly earnings and factors affecting earnings
- Dividends paid, dividend payout, or absence thereof and dividend-paying capacity
- Relevant economic and industry trends at the valuation date
- The outlook for the company at the valuation date, particularly as to earnings and dividends
- Comparisons between the company and publicly traded companies that could be employed for comparative purposes
- Investor appraisal ratios of the comparative companies
- Marketability of the subject blocks
- Transaction prices in private placements of unregistered shares issued by public corporations
