dilution

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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 ?
Using detailed, hand-collected data on stock option plans for a sample of firms from 1994 to 1997, we document the degree to which FASB-diluted EPS understates stock options' dilutive effect, and provide (weak) evidence that, compared to our theoretical measure of options-diluted EPS, FASB-diluted EPS yields downward-biased estimates of earnings-response coefficients.
An entity with discontinued operations, an extraordinary item, or the cumulative effect of an accounting change in a period should use income from continuing operations (adjusted for preferred dividends) as the "control number" in determining whether those potential common shares are dilutive or anti-dilutive.
15 in that the treasury stock method is used to determine the dilutive effect of outstanding options, warrants, and their equivalents.
If a company has stock options or warrants, the treasury stock method is used to reflect in their dilutive effect.
We explore how current shareholders incorporate unexpected earnings into share price when the firm has outstanding dilutive securities.
The company ranks the potential shares and includes them in the diluted EPS calculation by first including the most dilutive shares, then the next most dilutive and so on to the least dilutive shares.
This adjustment is only included if it has a dilutive effect on EPS.
Companies that do not have any dilutive convertible securities display a single EPS figure, earnings per common share.
Varian estimates the transaction will have a 6c per share dilutive impact to earnings on a GAAP basis and a 3c per share dilutive impact to earnings on a Non-GAAP basis for the remainder of fiscal year 2019.
achieved net income of $9.8 million, for the twelve months ended December 31, 2017 resulting in basic and dilutive earnings per share of $2.08.
This accounting treatment makes the acquisition more dilutive to Belden's expected earnings in 2008 and 2009 than would otherwise be the case.
The Pittsburgh-based food maker said it expects the transaction to be "mildly dilutive" in fiscal 2001, cutting earnings by 2 cents a share, and by 4 cents a share in fiscal 2002, due to the lost sales and the frozen-entree brands' seasonal nature.