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Does anyone know any "cost effective" solutions to preparing a FRS20 valuation for share options. We have a standard EMI scheme running for a number of employees, and as we come out of FRSSE this next year end, we are going to have to put a value on the options into the P & L for the first time. There is a vesting period on the options and they cover about 25 employees.

I've found a lot of information online, inlcluding a site which offers free downloads of the relevant spreadsheet models, but none seem applicable to a medium sized unquoted company.

There must be a lot of other companies in the same situation, any advice on the approach?
Ian Clark


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By Anonymous
15th Nov 2007 19:49

This standard is probably one of the most difficult standards in existence.

There are various models in existence, as you have found. However, where options are not traded and therefore the market price is unknown, then generally two types of model can be used:

The first is the Black-Scholes-Merton method (often referred to as Black Scholes model) and the second is the Binomial Probability Method.

The mathematical formulae used when calculating fair values of commercially traded options are too complex to post on a thread. I would suggest you "google" these methods and see which ones are more appropriate to your circumstances. For both methods, you will need a scientific calculator.

I hope this has been of assistance.

Kind regards

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