Have you ever thought of the term dilution of stocks and what significance it has for the stockholders? When a firm uses additional financing through the issue of extra shares, the stockholders will have a smaller proportion in the company. The definition what is dilution is fairly simple – there is an increase in the total amount of stocks (or decrease in the proportion of stocks) owned by a person. When analyzing an additional issue of stock, a merger, or the compensation of employees with stock, you need to know what is dilution. While dilution can reduce the share, firms can use it to raise funds.
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