STOCK DILUTION VS STOCK BUY BACK


Stock Dilution happens when the Corporation issues new shares/stock thus causing the shareholders ownership to decrease.

EX. ABC Corp has 1,000,000 shares outstanding. You, the shareholder, owns 10% (100,000) of ABC Corp. ABC Corp now issues another 1,000,000 shares. You now own 5% of ABC Corp. most shareholders find stock dilution to be “bad for business.”

Stock buy back is when ABC Corp buys back its own shares/stock. This is seen as a vote of confidence for the shareholders, and it also increases the remaining shareholders ownership stake in the corporation.

EX. ABC Corp has 1,000,000 shares/stock outstanding. You own 10% (100,000) of ABC Corp. ABC Corp now buys back 100,000 shares/stock. ABC Corp shares/stock outstanding has now been decreased to 900,000. You now own 11.2% of ABC Corp.

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