- MemberMay 13, 2020 at 8:48 pm
Hi Justin (and others),
I’ve seen a couple of companies like DraftKings and Nikola recently use warrants as a strategy for raising capital. Can you comment on the dilutive effect of warrants once holders are allowed to exercise? I’m assuming companies have to issue more shareS and then sell the warrants to you at a predetermined price.
- AdministratorMay 19, 2020 at 10:41 am
Yes! Warrants and options are all slightly different, so they’re going to differ a bit. But we basically use the Treasury Stock Method to assume the dilutive effect. We assume that they are exercised and the company uses the funds from the exercise to repurchase shares at the current market price. The net amount between those two assumptions is the additional shares added to the shares outstanding
Read about the TSM https://www.investopedia.com/terms/t/treasurystockmethod.asp
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