Dilution

When a company creates and sells new shares, each existing share owns a smaller slice of the company. That shrinking of everyone's slice is called dilution.

Companies dilute shareholders to raise money or to pay employees in stock. Investors often dislike it because the same profits are split across more shares.

Also called: share dilution, dilutive, diluted.

Related terms

  • Share class: Some companies have more than one kind of share. The kinds, or classes, can have different voting rights, for example shares that give you part of the profits but no vote.
  • Earnings per share: A company's profit divided by its number of shares. It's the most common way to measure profit, and the number Wall Street compares with its forecasts each quarter.
  • Market cap: What the stock market says a whole company is worth: the share price times the number of shares. If the price falls 10%, the market cap falls 10% too.

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