Corporate FinanceFinancial Glossary
Dilution
Definition
A reduction in existing shareholders' ownership percentage due to the issuance of new shares. Dilution occurs during rights issues, follow-on public offerings, ESOP exercises, preferential allotments, and warrant conversions. While total company value may increase, each existing share represents a smaller slice.
Why It Matters
Chronic dilution erodes per-share value even if the company is growing. If a company doubles revenue but also doubles its share count, earnings per share remain flat. Watch for companies that fund growth primarily through repeated equity issuances rather than internal accruals or debt — it signals weak cash generation.