Glossary

Dilution is a decrease in the ownership percentage of a company's shareholders as a result of the issuance of additional shares.

It occurs when a company issues new shares for any reason, such as raising capital, employee stock options, or stock splits. Dilution can lead to a reduction in earnings per share (EPS) and voting power for existing shareholders, which may negatively affect their stake in the company. 💸📉

For example, if a company has 1 million outstanding shares and decides to issue 200,000 new shares, the existing shareholders' ownership percentage will be diluted from 100% to 83.3% (1 million ÷ 1.2 million).

Fun fact: Dilution is not always negative for shareholders. While it may reduce their percentage of ownership, if the company successfully utilises the raised capital to grow and increase its value, shareholders may benefit from higher stock prices and potential future dividends. 📈