Overhang
Overhang is a measure of the potential dilution of stock shares due to possible awards of stock-based compensation. It is usually represented as a percentage and is calculated as stock options granted plus the remaining options to be granted divided by the total shares outstanding ((SO+RO)/TSO).
Definition: Over-issuance refers to the measure of potential dilution of stock shares due to possible equity incentives. It is usually expressed as a percentage and is calculated as the granted stock options plus the stock options to be granted divided by the total number of outstanding shares.
Origin: The concept of over-issuance originated from the need for corporate governance and shareholder rights protection. As companies increasingly used stock options as employee incentives, shareholders began to pay attention to the potential impact of these options on their shareholding ratios. In the late 20th century, with the rise of tech companies and startups, stock option incentive mechanisms became common, and the concept of over-issuance was widely accepted and used.
Categories and Characteristics: Over-issuance is mainly divided into two categories: actual over-issuance and potential over-issuance. Actual over-issuance refers to the dilutive impact of already granted stock options on existing shares; potential over-issuance includes stock options that have not yet been granted but may be granted in the future. The characteristic of actual over-issuance is that its impact is certain and quantifiable, while potential over-issuance is uncertain and depends on future grants.
Specific Cases: Case 1: A tech company A currently has 100 million outstanding shares, has granted 10 million stock options to employees, and plans to grant another 5 million stock options in the future. The over-issuance rate is calculated as (10 million + 5 million) / 100 million = 15%. Case 2: A startup company B has 50 million outstanding shares, has granted 2 million stock options to employees, and plans to grant another 3 million stock options in the future. The over-issuance rate is calculated as (2 million + 3 million) / 50 million = 10%.
Common Questions: 1. What impact does over-issuance have on shareholder rights? Over-issuance dilutes the shareholding ratio of existing shareholders, which may lead to a decrease in earnings per share. 2. How to control the risk of over-issuance? Companies can control the risk by setting a cap on stock option grants and regularly evaluating the over-issuance rate.
