Fully Diluted Shares

Fully Diluted Shares

What Does Fully Diluted Shares Mean?

The total number of shares that would be outstanding if all possible sources of conversion, such as convertible bonds and stock options, were exercised. Companies often release specific financial figures in terms of fully diluted shares outstanding (such as the company's profits reported on a fully diluted per share basis) to help investors properly assess a company's financial situation.

Investopedia explains Fully Diluted Shares

An investor should consider carefully the fully diluted share figure because it can cause a company's share price to plummet significantly if a large number of option holders or convertible bond holders decide to claim their stock. For example, let's say that XYZ Corp. is priced at $5 and has 1 million shares outstanding and 1 million options outstanding (assuming each option gives the right to buy one share). If all the investors decide to exercise their options, there will be 2 million shares outstanding and the share price probably will drop to $2.50.

Related Terms:
• Convertible Bond
• Convertible Preferred Stock
• Diluted Earnings per Share—Diluted EPS
• Float
• Outstanding Shares