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Stock dilution refers to the issuance of additional stock by a company, for any purpose. Some of those purposes are bad for outside shareholders, some are neutral, and believe it or not, some are actually good.
Dilution
DEFINITION OF 'DILUTION'
A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur when holders of stock options (such as company employees) or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder will own a smaller, or diluted, percentage of the company, making each share less valuable. Dilution also reduces the value of existing shares by reducing the stock's earnings per share.
BREAKING DOWN 'Dilution'
Suppose a company has issued 100 shares to 100 unique shareholders. Each shareholder owns 1% of the company. If the company then has a secondary offering and issues 100 new shares to 100 more unique shareholders, each shareholder will only own 0.5% of the company. The smaller ownership percentage also diminishes each investor's voting power.
Share dilution may be imminent any time a company needs additional capital. The potential upside of share dilution is that the additional capital the company receives from issuing additional shares can improve the company's profitability and the value of its stock.
Read more: Dilution Definition | Investopedia http://www.investopedia.com/terms/d/dilution.asp#ixzz3kDN10yeC
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Read more: Dilution Definition | Investopedia http://www.investopedia.com/terms/d/dilution.asp#ixzz3kDLkC1Hy
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