Murray Devine has extensive experience in valuing options and other equity-based compensation for financial reporting purposes under FASB ASC 718. In many private transactions, the purchaser of a company issues to the company’s management equity securities or options that are “out of the money”. FASB ASC 718 establishes the framework for assigning value to such equity-based compensation.
Murray Devine’s longtime clients include many of the country’s premier private equity, hedge and venture funds that utilize management compensation criteria involving complex capital structures and multiple classes of stock. Working with these funds and their auditors, Murray Devine has developed the expertise required to understand the most complex compensation plans and apply valuation methodologies that conform to AICPA guidelines.
Murray Devine has experience with a full range of equity valuation methods, including:
- Option-pricing methods (OPM) – which treat common stock and preferred stock as call options on the enterprise’s equity value. The OPM may involve Black-Scholes modeling, Binomial lattice models, and Monte Carlo simulations.
- Current-value method (CVM) – which allocates value to the various series of preferred stock based on the series’ liquidation preferences or conversion values.
- Probability-weighted expected return method (PWERM) – which is based on the probability-weighted present value of expected future investment returns, considering possible future outcomes available to an enterprise.
Hybrid Methods – which involve the use of OPM and PWERM.
