Page 72 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

58 The Complete Guide to Executive Compensation

• Net operating profit after taxes (NOPAT) This consists of operating income or
EBIT ($20,354,700 in Table 2-1) minus taxes ($6,714,800) plus goodwill amortization
($2,624,800) and interest expense ($3,845,700), or $20,110,400.

• Net worth growth This is the increase in shareholder equity measured by subtract-
ing the previous year total from the current year total. In the example, if the previous
year were $125,471,500 and the current year were $137,077,400 (Table 2-8), then the
increase would be $11,605,900, or 9.3 percent.

• Noncurrent assets This is company-owned property with a useful life of more than
one year. In the example, this is $251,696,400 (Table 2-6).

• Noncurrent liabilities These are financial obligations due to be paid more than a
year in the future. In the example, this is $170,237,400 (Table 2-7).

• Operating earnings See Operating profit.
• Operating income See Operating profit.
• Operating profit Also called operating income, this is income before interest and
taxes (EBIT). In Table 2-1, this is $20,354,700. It is more likely to be used for a unit
of the organization; company-wide corporate income measurements are more likely
to be economic profit or NOPAT.
• Overhang This is the number of common stock shares of all in-the-money, unex-
ercised stock options (150,000 in Table 2-9) and invested stock awards (none in Table
2-9) plus the number of shares of stock available for use (600,000 in Table 2-9). This
amount (750,000) divided by the total number of common shares outstanding
(15,250,000 in Table 2-1) equals the overhang percentage (4.9%). It is another meas-
ure of potential dilution. Potential overhang is overhang plus the number of additional
shares requested by management for option and award use. If the company were
requesting an additional 1,500,000 shares, potential overhang would be 2,250,000
(750,000 1,500,000), or 14.8 percent.

• Paid-in capital This is cash received from investors for purchase of company
stock, thereby consisting of par value of stock plus the amount received in excess
of par value. In the example, this is $152,500 plus $119,113,200, or $119,265,700
(Table 2-8).
• Par value This is the value of stock at time of IPO adjusted for stock splits. In the
example, this is $.01 per share, as a total of $152,500 (Table 2-8).
• Preferred stock Like common stock, the price of preferred stock is set by the mar-
ketplace and significantly affected by interest rates in relation to the prefixed dividend,
which must be paid before dividends are paid on common stock. In case of bankrupt-
cy, preferred shareholders will stand in line ahead of common shareholders.
Convertible preferred stock (like convertible debenture) permits the holder to convert to
common stock at specified terms (e.g., dates and prices).
• Pretax earnings This is earnings before taxes also called income before taxes. In the
example, this is $18,273,900 (Table 2-1).