The Financial Reporting Blog

A weekly update on financial reporting topics curated by Mercer Capital’s Financial Reporting Valuation professionals


How to Value a Company Planning to IPO

After the markets closed on September 18th, Chinese technology giant Alibaba priced the shares for its long-awaited IPO at $68 per share, higher than the previously expected range of between $60 and $66 per share. When measuring the fair value of equity-based compensation granted prior to an IPO, should the expected IPO price range or even the actual IPO price be indicative of the fair value of the shares at the time of the grant? Alibaba’s Form F-1/A dated September 15, 2014 notes that the company issued both options and restricted stock units up through September 5th. According to the company, the fair value of Alibaba’s ordinary shares was $59.00 for the most recent grant.

W(h)ither Yields? Dividend Capacity & BDC Stock Prices: A Mortgage REIT Case Study

Does a dividend cut automatically equal a drop in stock price? It ultimately depends on risk-adjusted returns available to investors from other asset classes. In a new whitepaper from Mercer Capital, Travis Harms and Jeff Davis examine the dividend-paying capacity of BDC stocks and the implications of reduced dividends on stock prices. Business development companies are an important and growing source of funding for middle market companies. Along with private equity and other investment funds, BDCs provide billions of dollars of investment capital to private companies in every segment of the economy. The authors also recently attended the 2014 BDC Roundtable, an annual gathering of BDC management teams, investment bankers, valuation firms, and accounting and tax experts.

Review Finds Equity-Based Compensation Reporting Works as Intended

Equity-based compensation (stocks, options, or something more exotic) is a useful tool for firms to hire and retain employees. Through shared ownership, such remuneration is commonly thought to align the incentives of employees, firms and other shareholders. In the case of startups, equity-based compensation can be particularly effective as it allows younger firms to conserve cash and obtain a greater degree of employee buy-in while competing effectively with much larger, established entities to acquire talent. Equity based compensation is attractive also because of the flexibility in structuring pay – human resources personnel and compensation experts are able to continually tinker terms and conditions to tailor awards to promote short, medium or long term goals of firms.

Rest and Vest

Estimating the fair value of stock-based compensation and accounting for it properly can be complex. This post discusses the “rest and vest” scenario through the lens of the HBO program, Silicon Valley.

Zynga and Concentrations Revisited

The Zynga IPO came out at $10 per share in December 2011 and the stock peaked at $14.69 in March 2012. The stock plummeted to $3.01 per share by the time Chris Mercer wrote about it in a 2012 post on his blog. He concluded that post with the following: “Concentrations can affect value.” How is Zynga doing today?

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