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 finance, 'dilution of shares' occurs when a company issues new shares, reducing the ownership percentage of existing shareholders. A financial analyst might say, 'The dilution of shares can affect share value and shareholder equity, especially after large capital raises.'

Practice Scenarios

Finance

Scenario:

The tech firm's decision to issue more shares might raise some concerns. Investors will have to weigh the potential return against the dilution impact.

Response:

It's important for investors to understand the dilution of shares. They need to consider more than just the potential returns.

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.