What does share dilution signify?

Share dilution refers to the reduction of existing shareholders' ownership percentage in a company due to the issuance of additional shares. When a company decides to raise capital by issuing more shares, the total number of shares outstanding increases. This means that the ownership stake of existing shareholders becomes a smaller percentage of the total shares.

For instance, if a company has 1,000 shares outstanding and then issues an additional 500 shares, existing shareholders now own a smaller proportion of the company, even though they possess the same number of shares as before. This reduction in ownership percentage can also affect their voting power and the distribution of future profits, such as dividends.

The concept of share dilution is important for shareholders because it can dilute their investment in the company, potentially impacting the value of their shares and the benefits they receive from ownership. Understanding this concept helps shareholders make informed decisions regarding their investments.