This dilution template helps you identify the impact of dilutive securities on the share price.
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Dilution can be caused due to a number of dilutive securities such as stock options, restricted and performance stock units, preferred stock, warrants, and convertible debt. Dilution may cause the share price to decline because dilution reduces the company’s earnings per share (EPS). The extent of decline depends on the percentage of dilution. Given basic shares outstanding, share price, and information of dilutive securities, we can calculate dilution using the treasury stock method, and use the diluted number of shares outstanding and the market capitalization of the company to calculate its new share price.
Step 1: Calculate the diluted number of shares outstanding using the treasury stock method.
Step 2: Calculate the diluted shares outstanding by adding the additional shares issued due to dilution to the basic shares outstanding.
Step 3: Divide the market capitalization of the company by the diluted shares outstanding to arrive at the new share price of the company.
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