Economics Questions

Re: Stock dillution

jdburdette — Tue, 04 Dec 2007 14:41:34 GMT

OK, yeah. That's a good point.

Re: Stock dillution

leonidia — Tue, 04 Dec 2007 06:57:42 GMT

Well, no, when a company issues stock to its employees it's a form of compensation.

Let's say a company has 1000 shares outstanding and the market values the shares at $10 each. The market cap of the company is therefore $10000. If the company issues 250 shares of additional stock to it's employees, the share price will likely fall to about $8. (1000+250)*8=10000.

Now let's say that instead of issuing stock, the company simply pays its employees a total of $2000. Well, in this case the market cap will fall by $2000, so instead of $10000, the market cap will be $8000. With 1000 shares oustanding, the share price will fall to $8, which is the same outcome.

Stock dillution

jdburdette — Tue, 04 Dec 2007 03:39:35 GMT

Does anyone have any thoughts on stock dillution? Dillution is when a company sells additional shares of stock (such as through employee stock options or convertible bonds). My first thought is that it is kind of like stealing from the existing shareholders.