What does the treasury stock method estimate?

The treasury stock method is a way to calculate the potential dilutive effect of outstanding options and warrants on a company's share count. When you want to determine the number of fully diluted shares outstanding, this method assumes that all in-the-money options and warrants are exercised.

Under this method, the company receives cash from the exercise of these options, which is then used to repurchase shares at the current market price. The net effect is that it increases the total share count, as the number of new shares created by the exercise of the options is more than the number of shares the company can repurchase with the cash received.

This estimation is crucial for investors and analysts as it provides a clearer picture of the company's capital structure and potential dilution that could impact shareholders. By knowing the fully diluted shares outstanding, analysts can more accurately evaluate earnings per share (EPS) and the company's valuation metrics, which are essential in investment banking and corporate finance.

The other options pertain to different financial measurements that do not relate to the specific calculation of shares outstanding through diluted equity instruments, making them less relevant in this context.