Dilution

Dilution is the reduction in each existing shareholder's ownership percentage — and claim on earnings — when a company issues new shares. Same company, more slices, each slice smaller.

It arrives through secondary offerings, convertible debt, warrants, and employee stock compensation. Stock comp is the quiet one: many growth companies issue 3-10% of their share count annually to employees, a real cost that GAAP expenses but that "adjusted" earnings often add back. The diluted share count in filings exists precisely to show the fully loaded picture.

Dilution is not automatically bad. Selling shares at a rich price to fund a project that earns more than the cost of that equity creates value; issuing shares at depressed prices just to keep the lights on transfers value from old holders to new ones. Cash-burning small caps live in the second category.