Fully Diluted Shares


DEFINITION of 'Fully Diluted Shares'

The total number of shares that would be outstanding if all possible sources of conversion, such as convertible bonds and stock options, were exercised. Companies often release specific financial figures in terms of fully diluted shares outstanding (such as the company's profits reported on a fully diluted per share basis) to allow investors the ability to properly assess the company's financial situation.

BREAKING DOWN 'Fully Diluted Shares'

An investor should consider carefully the fully diluted share amount because it can cause a company's share price to plummet significantly if a large number of option holders or convertible bond holders decide to claim their stock.

For example, let's say that XYZ Corp. currently has 1 million shares outstanding, 1 million options outstanding (assuming each option gives the right to buy one share) and its share price is $5. If everyone decides to exercise their options, there would be 2 million shares outstanding and the share price would likely drop to $2.50.

  1. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  2. Float

    Money in the banking system that is briefly counted twice due ...
  3. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  4. Option

    A financial derivative that represents a contract sold by one ...
  5. Diluted Earnings Per Share - Diluted ...

    Diluted Earnings Per Share (or Diluted EPS) is a performance ...
  6. Overhang

    A measure of the potential dilution to which a common stock's ...
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  1. Why should investors consider the fully diluted share amount?

    Investors should consider a company's fully diluted share amount before purchasing the company's stock, because it could ... Read Full Answer >>
  2. What's the difference between basic shares and fully diluted shares?

    Basic shares and fully diluted shares are different types of methods to measure the amount of shares investors hold in a ... Read Full Answer >>
  3. What exactly is a company's float?

    The term "float" refers to the regular shares that a company has issued to the public that are available for investors to ... Read Full Answer >>
  4. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  5. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>

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