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Value of Equity and Per Share Value when there are options and warrants outstanding
Aswath Damodaran


Equity Value and Per Share Value: A Test l Assume that you have done an equity valuation of Microsoft. The total value for equity is estimated to be $ 170 billion and there are 1204 million shares outstanding. What is the value per share?


An added fact l On September 30, 1997, Microsoft had 258 million options outstanding, granted to employees over time. These options had an average exercise price of $ 42 (the current stock price i $ 140). Estimate the value per share.


Equity Value and Per Share Value l l

The conventional way of getting from equity value to per share value is to divide the equity value by the number of shares outstanding. This approach assumes, however, that common stock is the only equity claim on the firm. In many firms, there are other equity claims as well including:
– warrants, that are publicly traded – management and employee options, that have been granted, but do not trade – conversion options in convertible bonds – contingent value rights, that are also publicly traded.


The value of these non-stock equity claims has to be subtracted from the value of equity before dividing by the number of shares outstanding.


Warrants l l


A warrant is a security issued by a company that provides the holder with the right to buy a share of stock in the company at a fixed price during the life of the warrant. A warrant is therefore a long term call option on the equity of the firm and can be valued using option pricing models. Warrants and other equity options issued by the firm are claims on the equity of the firm and have to be treated as equity, which has relevance for:
– estimating debt and equity for the leverage calculation – estimating per share value from total equity value


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