Dilution

Dilution means existing shareholders own a smaller percentage of a company because more shares are issued. In simple terms, dilution makes each share represent a smaller piece of the company. Dilution is important because it can reduce EPS and ownership value for existing shareholders. Companies may issue new shares to raise money, pay employees, or fund acquisitions, but this can dilute current investors. For example, if a company increases its share count from 100 million to 120 million, existing shareholders are diluted. Dilution is not always bad. If the company uses the new capital to create more value, shareholders may still benefit over time.