dilution-of-shares

Vocabulary Word

Definition

'Dilution of shares' is when a company increases the number of its shares, such as by issuing more stocks. Because of the increase, each share's value is reduced, and each shareholder's percentage of ownership is lessened.

Examples in Different Contexts

In investment, 'dilution of shares' is a consideration for investors, as issuing new shares can dilute the value of existing shares. An investor might explain, 'I assess the risk of share dilution when evaluating the long-term growth potential of a company.'

Practice Scenarios

Impact

Scenario:

As we plan for our next impact investment, we should be aware of the potential dilution. Any new equity issuance could reduce our relative stake.

Response:

Yes, a dilution of shares will occur, but the good that comes from this impact investment may outweigh the reduction in our stake.

Business

Scenario:

To fund our growth strategy, we may need to consider issuing more shares. This would provide the necessary capital but would also affect our shareholders.

Response:

Yes, issuing more shares would dilute our current shareholders. But it seems like a necessary step for the future growth of our company.