Glossary

Share dilution

A fall in each shareholder's slice of a company when it issues new shares.

When a company issues new shares, to raise money, pay employees in stock or buy another company, each existing share owns a smaller part of the business. Earnings per share can fall even while total profit rises.

Some dilution is a fair price for growth. Steady, heavy dilution often means the business cannot fund itself from its own cash.

To check it, compare the number of shares outstanding over several years. The opposite of dilution is a share buyback.

  • Share buyback: A company buying its own shares, so each remaining share owns more of the business.
  • Free cash flow: The cash a business produces from its operations after paying for the investment it needs to keep going.

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