Yeah - its a given..
Good things about dlition from the For Dummies article
http://www.dummies.com/how-to/content/what-pe...dilut.html
Penny stock investors will often hear the term dilution and assume the worst. Dilution is often viewed as a negative thing for an investment, but like most things in the stock market, it is a little more complex.
Penny stock dilution a good thing
If the company needs more money after its initial public offering, it can sell even more shares to generate the funds it needs. Those new shares could represent a portion of the company that wasn’t released in the original IPO. Any newly issued shares are sold to investors, and the company uses the money for working capital, or to pay debts, or make an acquisition.
Issuing new shares can decrease the proportionate value of each existing and new share, a result that investors call dilution. If a company doubles the total number of shares, the amount of money each share represents drops in half.
Every company needs to balance the ability to raise funds with the concerns caused by dilution.
The most obvious reason for issuing more shares is to raise funds, but companies issue new shares for other reasons:
•
Raising money: Whether an IPO or a subsequent offering, this is an efficient way for any publicly traded company to generate funds.
•
Giving up control: When the founder (or organization) owns too much of a company, she can easily lower that percentage of ownership by selling a portion to new shareholders by way of stock sale.
•
Expanding the shareholder base: The more shareholders a company has, the better. In fact, many of the major stock exchanges require that companies listing with them have a minimum number of unique shareholders. By issuing new shares into the market, the shareholder base expands as new owners purchase shares.
•
Paying executives and key employees: Companies regularly pay their key employees, or lure top talent, via shares or stock options. Penny stock companies are particularly fond of this maneuver because they may not have much cash to compensate executives but are able to offer shares that have potential to increase in value.
•
Cashing in options and convertible debentures: Sometimes new shares are created by using complex financial instruments. For example, a convertible debenture is like a loan in which the creditor could be paid back the amount owed or could convert that value into new shares of the company instead. Options also become shares of the company if and when they are exercised, or cashed in.
Issuing new shares can help a publicly traded company by giving it the greatest flexibility to take advantage of opportunities as it implements its business plan. The benefits can be great, as long as the company is cautious of the potential for causing shareholder dilution.
Good things about dlition from the For Dummies article
http://www.dummies.com/how-to/content/what-pe...dilut.html
Penny stock investors will often hear the term dilution and assume the worst. Dilution is often viewed as a negative thing for an investment, but like most things in the stock market, it is a little more complex.
Penny stock dilution a good thing
If the company needs more money after its initial public offering, it can sell even more shares to generate the funds it needs. Those new shares could represent a portion of the company that wasn’t released in the original IPO. Any newly issued shares are sold to investors, and the company uses the money for working capital, or to pay debts, or make an acquisition.
Issuing new shares can decrease the proportionate value of each existing and new share, a result that investors call dilution. If a company doubles the total number of shares, the amount of money each share represents drops in half.
Every company needs to balance the ability to raise funds with the concerns caused by dilution.
The most obvious reason for issuing more shares is to raise funds, but companies issue new shares for other reasons:
•
Raising money: Whether an IPO or a subsequent offering, this is an efficient way for any publicly traded company to generate funds.
•
Giving up control: When the founder (or organization) owns too much of a company, she can easily lower that percentage of ownership by selling a portion to new shareholders by way of stock sale.
•
Expanding the shareholder base: The more shareholders a company has, the better. In fact, many of the major stock exchanges require that companies listing with them have a minimum number of unique shareholders. By issuing new shares into the market, the shareholder base expands as new owners purchase shares.
•
Paying executives and key employees: Companies regularly pay their key employees, or lure top talent, via shares or stock options. Penny stock companies are particularly fond of this maneuver because they may not have much cash to compensate executives but are able to offer shares that have potential to increase in value.
•
Cashing in options and convertible debentures: Sometimes new shares are created by using complex financial instruments. For example, a convertible debenture is like a loan in which the creditor could be paid back the amount owed or could convert that value into new shares of the company instead. Options also become shares of the company if and when they are exercised, or cashed in.
Issuing new shares can help a publicly traded company by giving it the greatest flexibility to take advantage of opportunities as it implements its business plan. The benefits can be great, as long as the company is cautious of the potential for causing shareholder dilution.
