Fully Diluted Shares

What are 'Fully Diluted Shares'

Fully diluted shares are 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.

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RELATED FAQS
  1. Why should investors consider the fully diluted share amount?

    Learn about the importance of considering the fully diluted shares, how it could affect a stock's share price and how dilution ... Read Answer >>
  2. Why do companies release financial figures in terms of fully diluted shares outstanding?

    Learn why companies release their financial figures in terms of fully diluted shares outstanding so as to give a true picture ... Read Answer >>
  3. What's the difference between basic shares and fully diluted shares?

    Find out more about basic outstanding shares, fully diluted shares, the difference between the calculation of shares and ... Read Answer >>
  4. What is the difference between weighted average shares outstanding and basic weighted ...

    Outstanding shares refers to stock that is currently held by investors, including shares held by the public, and restricted ... Read Answer >>
  5. Why is a company's diluted EPS always lower than its simple EPS?

    Learn about diluted and basic earnings per share and why a company's diluted earnings per share is usually lower than its ... Read Answer >>
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    Learn the difference between simple and complex capital structures and how the structure affects a company's calculations ... Read Answer >>
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