When banks issue new stock for sale on the open market I hear people say that it dilutes share holder value?When they issue $10 Billion in stock, they get $10 Billion in cash - therefore on the balance sheet it is a wash. Now if they offer the stock out at a discount to the current price, but they use it to pay off debt, don't you have to look at what that debt would have cost to service to see if they made or lost... | |
Think of if this way:
Company has 1 billion shares and earns $1billion, so they earn $1 per share.
Now they offer 1 billion shares for 2 billion total. Except in very very rare cases, the new money coming in will NOT generate the same revenue as the existing shares.
Even assuming some benefit for expansion and/or debt reduction, they'll likely only generate $1.2 billion (or some such number). This translates to $0.60 per share - so yeah, the guys holding the original shares are getting less per share than they were.
yes dilutes existing shareholders,
may or may not, earnings are typically viewed on a per share basis
