When calculating dilutive share count, how are stock options generally treated?

In the context of calculating the dilutive share count, stock options are generally included based on their vested status. Vested options are the ones that an employee has the right to exercise, meaning they have met any conditions laid out by the company, such as duration of employment or performance metrics. Since these options can be converted into shares, they have the potential to dilute the earnings per share (EPS) if exercised.

Including only vested options in the dilutive share count provides a more accurate representation of the potential dilution effect on existing shareholders. This is because unvested options, which are granted but not yet exercisable, are not likely to impact the share count until they become vested. As a result, they are generally excluded from current dilutive calculations.

Options that are ignored or considered nonspecific, such as those with high strike prices or all outstanding options regardless of vesting status, do not accurately reflect the potential shares that would dilute existing shareholders. By focusing solely on vested options, the calculation aligns with the practical realities of what is likely to occur in the near term in terms of share dilution.