Dilution
Content
Definition
Dilution occurs when a company issues new stock which reduces an existing shareholder`s percentage of ownership.
Usage and Context
Companies might issue new stock to raise money. This can make each current share less powerful in voting and value.
Frequently asked questions
- What is dilution of shareholding of existing shareholders? Dilution of shareholding means current owners own a smaller part of the company after it issues new shares.
- What happens during dilution? During dilution, a company releases more shares. This lowers the ownership percentage of existing shareholders.
- Does a stock split dilute shareholder equity? No, a stock split doesn`t dilute shareholder equity. It increases the number of shares but keeps the total ownership the same.
Benefits
Issuing new stock can give a company more money to grow. This can lead to a bigger, more successful business in the long run.
Conclusion
Dilution reduces the ownership share of current shareholders. Yet, it can be a step towards growing the company.
