How Share Dilution Changes Ownership And EPS
Share dilution happens when a company issues new shares and increases its total share count. Existing investors still own the same number of shares, but those shares represent a smaller slice of the company. This dilution affects ownership percentage and typically reduces earnings per share (EPS) when net income stays the same.
The Share Dilution Calculator uses simple, transparent formulas to show how issuing new shares changes total shares outstanding, your ownership percentage and EPS. It is useful for public companies, private startups and any situation where new equity is being raised.
Step 1: New Total Shares Outstanding
The first step in modeling dilution is to update the total share count. If S_old is the number of shares outstanding before the new issue and S_new is the number of new shares issued, the new total shares are:
For example, if a company has 1,000,000 shares outstanding and issues 200,000 new shares in a financing round, the new total becomes 1,200,000 shares.
Step 2: Your Ownership Percentage Before And After
Let S_you be the number of shares you own. Your ownership percentage before the new issue is:
After the new shares are issued, the denominator changes to the new total share count:
Because the total share count has increased while your own share count remains the same, your ownership percentage will fall unless you also participate in the new issue.
Step 3: Ownership Dilution Percentage
To quantify how much your ownership has been diluted, the calculator computes the relative drop in ownership percentage. Let O_before be your ownership percentage before the issue and O_after be your ownership percentage after. The dilution percentage is:
The result is often expressed as a percentage by multiplying by 100. For example, if your ownership falls from 5% to 4%, the dilution is (0.05 − 0.04) ÷ 0.05 = 0.20, or 20% dilution of your original stake.
Step 4: Earnings Per Share Before And After
Earnings per share links a company’s net income to each share outstanding. If net income is NI and there are S shares outstanding, EPS is:
For dilution analysis, the calculator treats net income as unchanged when new shares are issued. EPS before and after are then:
EPSafter = NI ÷ Stotal after
Because the denominator increases, EPS usually drops. The EPS dilution percentage is defined analogously to ownership dilution:
The calculator displays EPS before, EPS after and the dilution percentage whenever you enter a positive net income.
Worked Example Of Share Dilution
Suppose a company has the following numbers before a financing round:
- S_old = 1,000,000 shares outstanding
- S_you = 50,000 shares owned by you
- Net income NI = 2,000,000
Your ownership percentage and EPS before the new issue are:
EPSbefore = 2,000,000 ÷ 1,000,000 = 2.00 per share
Now the company issues S_new = 200,000 new shares. The new total share count is:
Your ownership percentage and EPS after dilution become:
EPSafter = 2,000,000 ÷ 1,200,000 ≈ 1.67 per share
Ownership dilution is (5% − 4.17%) ÷ 5% ≈ 16.7%. EPS dilution is (2.00 − 1.67) ÷ 2.00 ≈ 16.7%. The drop matches because net income is fixed and only the share count changes.
How To Use The Share Dilution Calculator
- Enter the current shares outstanding before any new issue.
- Enter the number of shares you personally own.
- Enter the number of new shares the company plans to issue.
- Optionally enter net income to see how EPS changes before and after.
- Adjust decimal places for finer or coarser rounding of the results.
- Click the calculate button to see ownership percentages, dilution and EPS side by side.
Interpreting Dilution Results In Context
While dilution reduces ownership and EPS mechanically, it is not automatically negative. The key question is what the company receives in exchange for issuing new shares and how effectively it uses that capital. If the new capital funds profitable growth, the total value of the company can rise enough to offset the smaller percentage slice each investor holds.
The Share Dilution Calculator focuses on the structural mechanics. It gives you a clear baseline view of ownership and EPS changes so you can combine that information with qualitative judgments about the company’s strategy, valuation and growth prospects.
Share Dilution FAQs
Frequently Asked Questions About Dilution
Understand how new share issues affect ownership, EPS and long-term investor outcomes.
Dilution always reduces ownership percentage, but it is not necessarily bad. If the company uses the new capital to generate returns that are higher than the cost of issuing new equity, the total value of the business and your diluted stake can still increase over time.
Some investors negotiate anti-dilution provisions or rights to participate in future funding rounds so they can maintain their ownership percentage. Public investors can monitor equity issuance, stock-based compensation and share counts over time to understand dilution trends.
This calculator focuses on actual new shares issued. To model potential dilution from options and warrants, you can treat the number of shares that would be created upon exercise as S_new and rerun the calculation for a fully diluted scenario.