Valuation of Employee Stock Options for Client by MyValuation
- Publicly Listed Company
- Black-Scholes Methodology
Context and Purpose of Valuation
In 20xx, Client launched the “Employee Stock Option Plan – 20XX” (ESOP 20XX) as a strategic initiative to attract, retain, and incentivize key employees. The plan included granting equity stock options on various dates throughout the year.
To ensure compliance with accounting standards and regulatory requirements, client engaged MyValuation, an IBBI-registered valuer, to determine the fair value of the stock options issued under the ESOP 20XX scheme.
Scope of Engagement
MyValuation’s role encompassed the following:
Valuation Methodology
1. Fair Value of Underlying Equity Shares – Market Price Method
Since client is publicly listed on an active stock exchange, the Market Price Method was used to determine the fair value of the company's shares.
- Data Source: Daily traded prices of client’s stock
2. Valuation of Stock Options – Black-Scholes Option Pricing Model
The Black-Scholes Model, a widely accepted method for valuing European-style call options, was employed to derive the fair value of the employee stock options.
- Key inputs considered:
- Market price of the underlying share
- Risk-free interest rate
- Volatility of the underlying stock
- Exercise price
- Time to maturity
Conclusion and Impact
The valuation report provided by MyValuation allowed client to:
- Accurately recognize employee compensation expense in accordance with accounting standards
- Enhance transparency and fairness in its ESOP disclosures
About MyValuation
MyValuation is a leading valuation firm registered with the Insolvency and Bankruptcy Board of India (IBBI). The firm specializes in the valuation of equity shares, financial instruments, and intangible assets.