This dilution of excel template can be a useful tool for analysts and investors. Dilution of shares is a result of converting dilutive securities into common shares of a company. Dilutive securities can be stock options, preferred stock, warrants, restricted and performance stock units, and convertible bonds. Dilution can cause the share price to drop because it reduces the company's earnings per share (EPS). A company can calculate the effect of dilution on the share price using the treasury stock method. Below are the major steps to calculating the diluted share price:
- Calculate the diluted number of shares outstanding using the treasury stock method, which assumes that all of the money securities are converted into additional shares and proceeds are used to buy back the company's shares.
- Calculate the diluted shares outstanding by summing up the basic shares outstanding and additional shares issued.
- Determine the new share price of the company by dividing market capitalization (market value of equity) by the total diluted shares outstanding.