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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Rightmove: Asking prices edge closer to record peakAsking prices have been driven up by the top-end of the market, Rightmove has found. But how does the situation look in your area?
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
