Diluted Shares Outstanding

The TSM assumes in-the-money options and warrants are exercised, and the company uses the proceeds to repurchase shares at the current market price. Net dilution = shares from exercise minus shares repurchased. Only in-the-money options (exercise price < current share price) are dilutive. This is the standard method used in banking to calculate diluted shares.

Equity value = share price × diluted shares outstanding. Using basic shares overstates the per-share value because it ignores the additional shares that options holders and convertible holders can claim. In M&A, an acquirer must effectively pay for all diluted shares, not just basic shares. Diluted EPS is also the standard metric investors use, not basic EPS.

Basic shares are on the cover of the 10-K/10-Q. The diluted share count and details of options/RSUs/convertibles are in the footnotes to the financial statements (typically in the equity compensation or EPS footnotes). The difference between basic and diluted shares is sometimes called 'dilution overhang.' For tech companies with heavy stock-based comp, dilution can be 5–15%.