What Is Antidilutive?

Antidilutive is a term that describes the effects of certain actions, such as securities retirement, securities conversion, or other corporate actions (e.g., 澳洲幸运5官方开奖结果体彩网:acquisitions made through the issuance of 澳洲幸运5官方开奖结果体彩网:common stock or other securities) on the 澳洲幸运5官方开奖结果体彩网:earnings per share (EPS) or voting power of existing shareholders. Antidilutive activities maintain or increase th💦e voting power or EPS for existing shareholders by lowering the company's outstanding share count or increasing the company's earnings.

A second use of the term antidilutive refers to ownership rights, whereby existing shareholders in a certain 澳洲幸运5官方开奖结果体彩网:class of shares have the right to purchase additional shares when there is a new issuance of securities that would otherwise reduce their ownership percentage. This is called an 澳洲幸运5官方开奖结果体彩网:anti-dilution provision. The ability of existing shareholdeꦑrs to purchase additional shares helps them maintain their proportion of o🍰utstanding share ownership, therefore maintaining their share of the voting power or receipt of the company's EPS.

Either definition can be contrasted with dilutive corporate actions.

Understanding Antidilutive

Although most commonly used in reference to 澳洲幸运5官方开奖结果体彩网:convertible securities whose exercise would have the effect of increasing EPS, the use of the term "antidilutive" has become much more comprehensive. It refers to any action that helps an existing shareholder maintain or increase their voting power or receipt of the company's EPS. If securities are retired, converted, or impacted by certain corporate actiꦑvitie♛s, and the transaction results in an increased EPS, then the action is considered to be antidilutive.

However, these antidilutive actions are not included in the calculation of fully 澳洲幸运5官方开奖结果体彩网:diluted earnings per share (EPS), which is the profit-per-share of outstanding common stock. Both accountants and financial analysts compute diluted earnings per share as a worst-case scenario when evaluating a company's stock. With diluted earnings pe🦩r share, it is assumed that all convertible securities (e.g., convertꦍible preferred shares and convertible debentures) were exercised.

Dilutive vs. Antidilutive

Antidilutive refers to activities that maintain or increase EPS and shareholder voting power. Conversely, dilutive describes the effect of certain actions or activities that reduce EPS. As a result of dilutive activities, existing shareholders' ownership interests are reduced. Dilution is often accomplished through the issuance of dilutive securities, such as 澳洲幸运5官方开奖结果体彩网:stock options and convertible debt instruments, which ultimately i⛎ncrease the number of outstanding shares of common stock an✅d reduce EPS for existing shareholders.

However, certain contracts contain 澳洲幸运5官方开奖结果体彩网:protective provisions that prohibit the reducti💙on of a shareholder's interest if subsequent f𝔍unding rounds occur.

Antidilutive Example

For example, suppose Company A has five existing shareholders, who each own 10% of the company. If Company A issued more shares to gain new shareholders, the existing shareholders would see their 10% ownership stake shrink as more owners bought in. This is known as dilution. If Company A had an antidilutive policy in place, they would need to offer the exist✱ing five shareholders the ability to buy more shares in order to maintain their 10% ownerꦍship in the company.