stock-dilution

Vocabulary Word

Definition

'Stock-dilution' happens when a company issues more shares. This increases the total number of shares, but it decreases the worth of each previously existing share, much like diluting a drink with water.

Examples in Different Contexts

For corporate finance, stock dilution is often a consequence of raising funds through equity financing. A CFO might explain, 'We're aware that issuing new shares leads to stock dilution, but it's necessary for financing our expansion and innovation projects.'

Practice Scenarios

Business

Scenario:

Our capital needs for the upcoming expansion are enormous. We should discuss possible fundraising strategies.

Response:

One option could be to issue additional shares, although we should consider the impact of stock dilution on our existing shareholders.

Tech

Scenario:

We're considering opening up another round of funding since the app has gained traction. This, however, will affect our current equity structure.

Response:

If we pursue another funding round, we'll have to manage the stock dilution carefully to keep our early investors happy.