This article will cover the fair value and share price valuations on Capdesk and how exactly they are used when exporting the SBP report.
There are several parts to exporting the SBP report and there are a few mandatory steps you have to follow. For both values you must first navigate to the shares page:
- Go to Shares page -> Valuations. This tab is where you can enter the share price and the fair value valuations. These valuations are used to help us calculate the fair value of the shares.
- The share price is to help indicate the current market price of the shares, and is used for the "Exercised - Weighted average share price" on the price estimates sheet of the report.
- A fair value valuation is used as a certainty of the market value of an asset for which a market price cannot be determined. It can also be used for the expense of vested options.
- On Capdesk, we use fair value to calculate weighted average fair value for option grants in the Price Estimate worksheet in the SBP report.
1. Adding a share price:
- To begin with, select the jurisdiction for your company and then select “Share price” in the valuation type drop down.
- From here you will need to input a valuation date, select the relevant share class for the valuation and then the share price.
Please note you will need to input a different valuation for each specific share class.
It is important to note that the options granted on this date or after will have this share price attached to them, until a more recent valuation is added. You can view this share price on a specific option grant by navigating back to the options page and then clicking on the option grant itself.
2. Adding a Fair Value
Similar to adding a share price valuation, instead of selecting “Share Price”, you will need to select “Fair value” valuation.
You are then required to enter values for:
- Valuation date: date of the valuation
- Dividend yield: a dividend expressed as a percentage of a current share price. (We also support a Black-Scholes report without dividends, you can do this by changing the valuation model)
- Spot price: the current share price
- Risk-free interest rate: the return on the investment as a %
- Volatility: the rate at which the price of a security increases or decreases for a given set of returns as a percentage.
These are all used as input parameters for the Black Scholes model.
- The fair value is an estimate of the current market value and can be calculated using several formulas. Capdesk currently only supports Merton extended Black-Scholes formula to support continuous dividend yield as well as the Black-Scholes model without dividend yield.
- Once you have filled these fields with the correct inputs, they will then link with the option grants using the grant date and the valuation date. The valuation is then calculated by the exercise price of the grant and the time to mature, when the report is ordered.
3. How to export the SBP report
- Now that you have added the valuations, you can export the report. To do so, navigate to the Options page, then “Export” button, from the drop down menu, please select “Share-Based Payments”.
- From there you will be redirected to another page where you will have to input specific parameters.
To "Include Drafts?" means if you are not live and your data is not published, it is in drafts. Please include this if you are not live and wish to export the report.
- IFRS2 requires, in the treatment of vesting conditions, that the number of options expected to actually vest (as opposed to the total granted amount) is estimated for each grant at reporting date.
The next parameter is the expense method which means the expensing method applied to the vesting tranches in the report, how to add value when an option vests. You can select from three types:
- Graded: accounts for the expense of a vesting tranche equally in all periods from vesting start of the grant until the actual vesting date of the tranche.You can read for further explanation of the Graded expensing method here: Graded Expensing Method
- Ratable: accrues expense based on the number of shares in the tranche. For example, if you have 50% of the grant shares in the first 1-year tranche and 33% in the second 1-year tranche and 17% in the final 1-year tranche. 50% of the expense will be booked over the first year, 33% over the second year and 17% over the third year.
You can read for further explanation of the Ratable expensing method here: Ratable Expensing Method
- Straight-line: the total expense for the grant is recognised evenly from grant date to the final vest date, with no regard to how many shares are in each tranche or when the vesting commences. You can read for further explanation of the Straight-line expensing method here: Straight-line Expensing Method
Please select the one you would like to export. The next two parameters refer back to the time period of the report:
- From: the report will only include grants and transactions from this date and forward. Leaving it blank, all grants and transactions before the as of date will be included in the report.
- To: include transactions up to and including this date.
- Period: intervals of the period in the vesting overview.
Grants may share a common deflation percentage estimate or be divided into time based deflation percentages to account for deflation varying throughout the years.
The estimate can be made taking for instance employee churn, average leaver lifetime, and other parameters, into account, and results in one or more deflation percentages, which are applied when calculating expected future value of each grant ('deflating' the value appropriately).
A churn of 10 % should be entered as 10 % deflation, and the deflation should be a number between 0 and 100.
- Simple: Simply input a number between 0-100 that represents the deflation
- Time based: If you select this option, you will need to enter the default deflation. You can then choose to add specific time periods where the deflation will be different, you can do this by clicking “Add deflation” and input the deflation percentage, start date and end date.