Fundamental Glossary / Shareholding & Ownership
Equity Dilution
A fall in the existing shareholder's percentage ownership, and often in earnings per share, because new shares are issued.
Formula
New shares / shares after the issue. EPS dilution depends on what the new capital earns relative to the price it was issued at.
What it means
Dilution happens in rights issues, private placements, ESOPs, convertibles, and mergers paid in stock. The old shareholder owns a smaller slice unless they buy their proportion.
Dilution of ownership is certain when new shares are issued to others. Dilution of value is not. Capital raised at a fair price and invested above the cost of capital can raise value per share.
How to read it
A small annual dilution from employee options is a cost of hiring. A large issue at a discount, used to repair a balance sheet, is a transfer from old shareholders.
What to watch
Fully diluted share count is the right denominator for per-share value when convertibles and in-the-money options exist. Basic shares understate the claims.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.