Share dilution
Have you ever played with a pack of candies and you decide to share them with your friends? Let's say you have 10 candies and share them with 5 friends. You will give 2 candies each to your 5 friends, and none will be left for you.
This is similar to what happens with share dilution in a company. When a company wants to raise money, it can either borrow from a bank or sell its shares to the public. When a company sells its shares to the public, it is called an initial public offering (IPO).
Let's say the company has 10 million shares, and it wants to sell 1 million shares to the public through an IPO. Now, when the company sells the shares, the investors who buy them become part owners of the company. The more shares they have, the bigger their ownership in the company.
But here's the key thing that makes share dilution happen: when more shares become available, each individual share becomes worth less. It's just like your candies. When you share them with more friends, each friend gets fewer candies. So, when a company sells more shares, the existing shareholders have to share the ownership of the company with the new investors who bought the new shares.
Share dilution can have an impact on different things, such as voting rights, dividends, or the company's earnings per share. This is because when a company issues more shares, the earnings are divided among more shareholders, and each shareholder gets a smaller piece of the pie. It's like sharing a pizza, If you have 4 friends and each share equally, they will get a bigger slice than if you add 2 more friends, then everyone gets a smaller slice.
In conclusion, share dilution is when a company issues more shares, and each existing shareholder ends up owning a smaller percentage of the company. Just like when you share your candies with more friends, each friend ends up getting fewer candies.
This is similar to what happens with share dilution in a company. When a company wants to raise money, it can either borrow from a bank or sell its shares to the public. When a company sells its shares to the public, it is called an initial public offering (IPO).
Let's say the company has 10 million shares, and it wants to sell 1 million shares to the public through an IPO. Now, when the company sells the shares, the investors who buy them become part owners of the company. The more shares they have, the bigger their ownership in the company.
But here's the key thing that makes share dilution happen: when more shares become available, each individual share becomes worth less. It's just like your candies. When you share them with more friends, each friend gets fewer candies. So, when a company sells more shares, the existing shareholders have to share the ownership of the company with the new investors who bought the new shares.
Share dilution can have an impact on different things, such as voting rights, dividends, or the company's earnings per share. This is because when a company issues more shares, the earnings are divided among more shareholders, and each shareholder gets a smaller piece of the pie. It's like sharing a pizza, If you have 4 friends and each share equally, they will get a bigger slice than if you add 2 more friends, then everyone gets a smaller slice.
In conclusion, share dilution is when a company issues more shares, and each existing shareholder ends up owning a smaller percentage of the company. Just like when you share your candies with more friends, each friend ends up getting fewer candies.
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