What are the implications of issuing additional 2 billion shares of common stocks?
Flexibility An important implication of issuing additional stock is that companies secure access to cash that does not have to be paid back. Unlike the case with debt financing, companies do not have to make regular principal and interest payments, which gives management more operational flexibility. Companies do not have to worry about being forced into bankruptcy by shareholders, but bondholders can lay claims on collateral assets if companies miss scheduled payments. Companies can use the proceeds from issuing additional stock to plug cash-flow shortfalls, pay off high-interest loans, make repairs to facilities, and invest in new equipment.
Dilution Additional stock issues, by definition, dilute the ownership of existing shareholders. For example, if an investor owns 1,000 shares of a company that has 100,000 shares outstanding, he owns 0.01 -- 1,000 divided by 100,000 -- or 1 percent of the company. If the company issues 20,000 additional shares, his ownership becomes diluted because he now owns 0.0083 -- 1,000 divided by 120,000 -- or 0.83 percent of the company. Publicly traded companies often experience a drop in their share prices when they announce additional share issues. If management can invest the additional funds to generate higher profits, share prices could rise, which benefits all shareholders...
Market Data 
Markets 
AI
