dilution

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Related to diluted: Diluted Earnings Per Share

Dilution

Diminution in the proportion of income to which each share is entitled. Issing new shares often causes dillution.

dilution

A decrease in the equity position of a share of stock because of the issuance of additional shares. Dilution is usually detrimental to the position of existing shareholders because it weakens their proportional claim on earnings and assets. See also potential dilution.

Dilution.

Dilution occurs when a company issues additional shares of stock, and as a result the earnings per share and the book value per share decline.

This happens because earnings per share and book value per share are calculated by dividing the total earnings or book value by the number of existing shares.

The larger the number of shares, the lower the value of each share. Lower earnings per share may trigger a selloff in the stock, lowering its price. That's one reason a company may choose to issue bonds rather than new stock to raise additional capital.

Similarly, if companies merge or one buys another, earnings may be diluted if they don't increase proportionately with the combined number of shares in the newly created company.

Dilution can also occur if warrants and stock options on a stock are exercised, and if convertible bonds and preferred stock the company issued are converted to common stock.

Companies must report the worst-case potential for such dilution, or loss of value, to their shareholders as diluted earnings per share.

dilution

  1. the decrease in control and EARNINGS PER SHARE experienced by existing shareholders in a JOINT-STOCK COMPANY when SHARE ISSUES are made which attract new shareholders. Dilution is a particular problem in fast-growing, family-controlled companies where the need to raise new capital may dilute the founding family's shareholdings to below 50%, causing them to lose potential control of the company.

    In the past, companies have sought to avoid dilution whilst continuing to raise capital by issuing NON-VOTING SHARES; but these are nowadays disapproved of by most STOCK MARKETS.

  2. the weakening of the monopoly of skills of a particular occupational group by the recruitment of less-skilled workers to perform the same work. See SKILL.
References in periodicals archive ?
(1) Adjusted diluted EPS from continuing operations is not calculated in accordance with accounting principles generally accepted in the United States of America (U.S.
This reflects an improvement when compared with net income per diluted share of USD1.07 per diluted share for the second quarter of 2014.
Adjusted income from continuing operations - which excludes Norway and Angola - for the second quarter of 2014 was USD423 million, or USD0.62 per diluted share, compared to adjusted income from continuing operations in the second quarter of 2013 of USD293 million, or USD0.41 per diluted share.
* No evidence of chemical or physical properties of diluted bitumen that are outside the range of other crude oil shipments;
(the "Company") today reported 2010 second quarter net income of $32.5 million, or $0.76 per diluted share, on sales of $515.6 million.
last week reported net income for the fourth quarter of 2009 of $42.8 million, or $0.63 per diluted share, compared to $50.7 million, or $0.75 per diluted share, for the third quarter of 2009 and $35.4 million, or $0.52 per diluted share, for the fourth quarter of 2008.
announced in late January that its 2006 earnings per diluted share of $2.06 represent the best year since the spin-off of Arch Chemicals in 1999.
reported diluted funds from operations of $40.5 million, or $0.47 per share for the third quarter of 2006 including approximately $2.1 million, or $0.03 per share charge recognized in connection with Reckson's long-term incentive compensation plan.
The recorded net loss for the 52 weeks ended January 29 totaled $269.3 million, or $8.96 per diluted share, contrasted to net earnings of $16.5 million, or 54 cents per diluted share, in fiscal 2003.
The company earned 11 cents per share diluted in the fourth quarter of 2000, before special charges and other unusual items, compared to 6 cents per share diluted in the fourth quarter of 1999.
Net income for the third quarter was $23.2 million or $0.57 per diluted share, a 14.0 percent increase in earnings per diluted share.
Net income for the quarter rose from $23.8 million to $24.2 million, yielding an eight-cent increase in diluted earnings per share from 46 cents to 54 cents (also accounting for a two-for-one stock split in December).