What method is used to calculate the fully diluted number of shares outstanding?

The fully diluted number of shares outstanding takes into account all potential shares that could be created through the exercise of options, convertible securities, and other similar instruments. The treasury stock method is specifically designed for this purpose, as it estimates the number of shares that would be issued upon the exercise of outstanding options and then reduces the total number by the shares that could be repurchased with the proceeds from the exercise.

Using this method, the company can effectively gauge the impact of potential dilution on current shareholders, facilitating a clearer understanding of their total ownership percentage. The treasury stock method assumes that the proceeds received from option exercises are used to buy back shares at the current market price. Hence, it computes a net increase in shares outstanding, providing a more accurate reflection of the company's capital structure.

Other methods listed, like the weighted average method, FIFO, and straight-line method, pertain to different aspects of financial analysis or inventory valuation and are not relevant to calculating fully diluted shares. The weighted average method is typically used in calculating average costs or share counts over periods, FIFO relates to inventory costing, and the straight-line method generally applies to depreciation calculations. Thus, the treasury stock method is uniquely suited to determining the fully diluted share count.