Dilutive security
Dilutive securities are financial instruments—usually
convertible bonds—which increase the number of common shares if exercised; this then reduces, or "dilutes", the basic EPS (earnings per share
).
[1]
Thus, only where the diluted EPS
is less than the basic EPS is the transaction classified as dilutive.
[2]
Compare Accretion (finance).
Some examples of dilutive securities are
convertible preferred stock, options, warrants, participating securities, two-class common stocks, and contingent shares.[3]
The concept of dilutive securities is often a purely theoretical one, since these instruments will not be converted into common stock unless the price at which they can be purchased will generate a profit. In many cases, the strike prices are set above the market price, so they will not be exercised.[4]
References
- ISBN 978-0-470-61631-4.
- ISBN 978-1-111-53026-6.
- ISBN 978-0-470-52728-3.
- ^ Bragg, Steven (21 November 2018). "The Differences Between Dilutive Securities and Anti-Dilutive Securities". Investopedia. Archived from the original on 2014-11-01. Retrieved 11 December 2019.
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