Dilution is the devaluation of shareholders’ equity positions due to the publication or creation of new shares. We know that a share of stock represents equity ownership in that company. When a firm’s board of directors takes a decision of declaring their company public, through an initial public offering (IPO), they authorize the number of shares that will be offered on the stock market at the beginning. This initial amount of outstanding stock is commonly known as the “float.” If that company later issues additional stock, it has increased the float and therefore diluted current stock meaning that the shareholders who recently bought the original IPO of stocks now have a smaller ownership stake in the company compared with what they had prior to the new shares being released.
