Stock dilution | Stocks and bonds | Finance & Capital Markets | Khan Academy

Why the value per share does not really get diluted when more shares are issued in a secondary offering. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/mergers-acquisitions/v/acquisitions-with-shares?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/chapter-11-bankruptcy-restructuring?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: When companies issue new shares, many people consider this a share "dilution"--implying that the value of each share has been "watered down" a bit. This tutorial walks through the mechanics and why--assuming management isn't doing something stupid--the shares might not be diluted at all. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy

Comments

1. I thought this was a chemistry tutorial
2. Awesome explanation!
3. Criminals!
4. Great video and explanation. Thanks!
5. It helps me with my math homework! It is a cool video!
6. So if the company makes a secondary offering, the earnings that the company makes for the offering makes up for the depreciation in the stock price? Because if a company buy's back shares investors profit via capital appreciation so if the opposite takes place in the form of dilution surely there will be capital depreciation no? Regarding stock options, investors should always value the company with all shares because the options can fuck you over and if the options are not exercised then investors profit right?
7. thanks
8. thanks for all subtitle, it really helps non-English speaker like me
9. How does a corporation know the limit of the number of shares that is demanded by the market? If it issues too many shares then won't it hurt its own stock price or even turn into a South Sea Bubble or a Mississippi Scheme?
10. If i wanted to kick out a shareholder in my company who is refusing to leave, and i am the majority share holder in that company (UK company), can i dilute the shares to a point where it becomes worthless ? (ie creating more shares without bringing in an investment)
11. thanks sal. much respect.
12. thank you you have no idea how helpful these videos are. again, thanks for posting this
13. Thanks for replying, but I feel that this answer confuses me even more. I tried searching for the term "coming out on the float" but google doesn't return any hits relating to finance. It would be appreciated if you could source or cite your information so that I could refer to it as well. Thank you for trying.
14. Very dilutive and a sick practice that was all to common during the dot com days but the public kept buying the stocks anyway.
15. From the investors. By simply creating the stocks and releasing them to the public for the first time (something that's called "coming out on the float", after that, stocks are acquired through trading) the public pays the two bucks per share (in this case) for the stock, which is money the company then uses to produce new whatever, turn a profit, and experience growth.
16. Thanks for elaborating, Khan! I finally found a company I feel safe investing in and I'm ready to take the plunge and risk my first little sum of money in a long-term-investment. I had heard of "dilution" before, though I wasn't really sure if it actually decreased the value of your investment or if it just decreased your percentage of ownership of the company, which is something I'd only be worried about if I wanted to be a top shareholder or something. I just can't figure out for the life
17. It is, in a way. Though it has no physical form, money is an imaginary substance which has properties that are metaphorically correspondent to the properties of chemical substances. Economists think about money as though it were mana, in an RPG of some sorts. It's this imaginary, ethereal substance (backed physically by little paper or metal contracts) that divide up and and "cast" on different real-world situations in order to generate wealth and purchase goods/services.
18. damn, I wanted to calculate the dilution factor! lol
19. nice scam...so if i know my company is going to get a big contract I can dilute the stock, buy a larger share, then take a bigger chunk of the profits I am going to make on the contract.
20. Could someone comment on what happens when a company issues new stock and then gives it to executives as a bonus?