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


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 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.


  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 ?
Although including those potential common shares in the other diluted per-share computations may be dilutive to their comparable basic per-share amounts, no potential common shares should be included in the computation of any diluted per-share amount when a loss from continuing operation s exists, even if the entity reports net income.
The dilutive effect of outstanding call options and warrants (and their equivalent) issued by the reporting entity should be reflected in diluted EPS by application of the treasury stock method in most instances.
When the Company records a net loss in a period, all of the above potentially dilutive items are excluded from the diluted EPS calculation as their inclusion would be anti-dilutive.
Stock options and warrants have been issued and those with a dilutive impact were included in the calculations.
15, net loss per share is based on the weighted average number of common shares outstanding for the period and does not include the dilutive effect of stock options.
The transaction will be dilutive to GAAP earnings through 2009 and is expected to close during third-quarter 2006 or fourth-quarter 2006.
On the other hand, the deal is dilutive to earnings, lowers tangible common equity temporarily, and reduces funding and business line diversity.
The issuance of the Rights has no dilutive effect, will not affect reported earnings per share, is not taxable to Unilab or its stockholders, and will not change the way in which Unilab stock is traded.
As a result of step-ups, anticipated asset values and stocks, and one-off costs associated with the integration, the transaction is expected to be dilutive on a reporting basis for the first two years.
30, 1993, based on the assumed conversion of dilutive securities, including warrants to purchase common stock (issued March 31, 1993); dilutive securities were dilutive in 1993 and anti- dilutive in 1992.
These sales are expected to be dilutive to HRPT's net income, by less than $0.