Dilution

In the world of finance, dilution means something is being watered down, typically earnings per share.

In the world of finance, dilution means something is being watered down, typically earnings per share (see separate definition).

Warrants, share options and other convertible securities issued by a corporation have a potentially diluting effect on earnings per share because more shares are created without any boost to earnings.

Say, for example, a company has 100 shares in issue and earnings of £20. EPS is 20p. It then issues a further 100 shares to meet demand from options being exercised. Since there is no associated change in earnings, the revised EPS figure is now £20/200 or just 10p.

Recommended

Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Free 6 issue trial then continue to