Market Cap using Diluted Share Count.

I guess the question pertains to Level I curriculum Theoretically to calculate market capitalization we must account for in the money stock options for the share count. However I guess it is tedious, so my senior analyst in fixed income (sell side) takes fully diluted share count? Is that how you guys do it? Also if a company issues too many options then stock prices may decline to take into account dilution and hence market cap may remain same. So why not take basic share count?

Most people use diluted to measure EPS. Another reason to use diluted is if you are looking at the ‘take-out’ value of the firm. All those pesky options will be redeemed at par, likely increasing the amount of debt used to finance the purchase. Of course, if the bulk of those options are out-of-the-money, then you are right not to count them. But given the movements in the markets over the last several years, assuming they are in the money is a justifiable shorthand.