Stock Dilution

Stock Dilution

Why the value per share does not really get diluted when more shares are issued in a secondary offering More free lessons at: http://www.khanacademy.org/vide…
Video Rating: 4 / 5

20 thoughts on “Stock Dilution

  1. fish and banana

    If i wanted to kick out a shareholder in my company who is refusing to
    leave, and i am the majority share holder in that company (UK company), can
    i dilute the shares to a point where it becomes worthless ? (ie creating
    more shares without bringing in an investment)

  2. Yoga Bread

    How does a corporation know the limit of the number of shares that is
    demanded by the market? If it issues too many shares then won’t it hurt its
    own stock price or even turn into a South Sea Bubble or a Mississippi
    Scheme?

  3. TheMathShaman

    It is, in a way. Though it has no physical form, money is an imaginary
    substance which has properties that are metaphorically correspondent to the
    properties of chemical substances. Economists think about money as though
    it were mana, in an RPG of some sorts. It’s this imaginary, ethereal
    substance (backed physically by little paper or metal contracts) that
    divide up and and “cast” on different real-world situations in order to
    generate wealth and purchase goods/services.

  4. TheMathShaman

    Thanks for elaborating, Khan! I finally found a company I feel safe
    investing in and I’m ready to take the plunge and risk my first little sum
    of money in a long-term-investment. I had heard of “dilution” before,
    though I wasn’t really sure if it actually decreased the value of your
    investment or if it just decreased your percentage of ownership of the
    company, which is something I’d only be worried about if I wanted to be a
    top shareholder or something. I just can’t figure out for the life

  5. TheMathShaman

    From the investors. By simply creating the stocks and releasing them to the
    public for the first time (something that’s called “coming out on the
    float”, after that, stocks are acquired through trading) the public pays
    the two bucks per share (in this case) for the stock, which is money the
    company then uses to produce new whatever, turn a profit, and experience
    growth.

  6. Noumenon72

    But the point is, the company can’t get $2 for the new shares, because the
    company is only worth $8! If the company issues 1,000,000 new shares, no
    one’s going to pony up $2,000,000 and say “Hey, I now own a company that’s
    worth $2,000,008.” Or maybe that is what they’re saying — “I think this
    company can create new factories with my money that will be worth $2 for
    every $2 I give them?

  7. Leroy Butler

    Very dilutive and a sick practice that was all to common during the dot com
    days but the public kept buying the stocks anyway.

  8. jimg3925

    Could someone comment on what happens when a company issues new stock and
    then gives it to executives as a bonus?

  9. bob fred

    nice scam…so if i know my company is going to get a big contract I can
    dilute the stock, buy a larger share, then take a bigger chunk of the
    profits I am going to make on the contract.

  10. pocketlint59

    Thanks for replying, but I feel that this answer confuses me even more. I
    tried searching for the term “coming out on the float” but google doesn’t
    return any hits relating to finance. It would be appreciated if you could
    source or cite your information so that I could refer to it as well. Thank
    you for trying.

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