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For most private companies, common stock is never traded.
In a 2004 practice aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, the AICPA recommends the method for valuing optioned stock: appraising the specific shares subject to option.
Just as with public companies, the appraised value of a private company fluctuates over time, and this fluctuation, or volatility, is a key driver of stock option value.
* Siemens (OTC: SMAWF) stock broke to a new 52-week low of $51.21 on Friday.
* Siemens (OTC: SIEGY) stock hit a new 52-week low of $100.75.
* Bristol-Myers Squibb (OTC: BMYMP) stock achieved a new 52-week low on Friday morning, hitting $800.00 and moving 0.0% (flat).
Prior to those deals, the stock suffered a drop from $93 to $47.
Crane says the stock, which had fallen from $56 to $47 at the time of this writing, has as much as a 40% upside, which could send the price over $60 in 2007.
Crane expects Tetra Technologies (NYSE: TTI), another stock that has fallen out of favor, to turn around.
In another instance, (17) a company had two classes of stock when it elected S status.
The first corporation wanted to issue stock options to employees of the foreign affiliates of the second corporation.
This includes capping the amount of company stock an individual can hold, making company matching contributions in cash rather than stock or, if matching is done with company stock, letting employees immediately diversify.
Companies should offer mandatory education sessions for all employees and counsel specific employees who have too much company stock in their plan accounts.
But, the reports of the demise of stock options have been greatly exaggerated.
Stock options will and should continue to be a major component of executive compensation, given the potential for superior long-term wealth-creation power for executives and the benefits for shareholders.