the cash received from the exercise of the stock options should be treated as operating or financing CF? (to reflect high earning quality) Thx
Hi cding, It depends on the type of cash flow. When stock options are excercised, 2 type of cash flows are expected: 1) proceeds received from the employee ( this will always be classified as financing CF) 2) tax savings As per new rules the options are required to be expensed when they are granted based on fair valutions. This will create DTA ( deffered tax assets) as tax benefit can only be claimed when the options are excerised. Now upon excecise of option the tax benefit to the extent of DTA ( DTA will reverse) will be classified as operating CF and and excess tax benefit as financing CF. Hope this is not creating more confusion.
Hi, Eakesh Thx a lot for your detailed explanation