What is 'Antidilutive'

Antidilutive is a term that describes the effects of actions such as securities retirement, securities conversion or corporate actions (such as acquisitions made through the issuance of common stock or other securities) on the earnings per share (EPS) or voting power of existing shareholders.If an activity is antidilutive, it maintains or increases the voting power or EPS for existing shareholders by lowering the company's outstanding share count or increasing the company's earnings.

A second use of the term antidilutive refers to ownership rights, whereby existing shareholders in a certain class of shares have rights to purchase additional shares when there is a new issuance of securities that would otherwise reduce the ownership percentage of existing holders. This is called an anti-dilution provision. This ability of existing shareholders to purchase additional shares helps them maintain their proportion of outstanding share ownership, therefore maintaining their share of the voting power or receipt of the company's EPS.

BREAKING DOWN 'Antidilutive'

Although most commonly used in reference to convertible securities whose exercise would have the effect of increasing EPS, the use of the term "antidilutive" has become much more comprehensive. It refers to any action that helps an existing shareholder to maintain or increase their voting power or receipt of the company's EPS.

Antidilutive Example

For example, let's say Company A has five existing shareholders who each own 10% of the company. If Company A were going to issue more shares to gain new shareholders, the existing five shareholders would see their 10% ownership stake shrink as more owners bought in. This is known as dilution. If Company A had an antidilutive policy, they would need to offer the existing five shareholders the ability to buy more shares to maintain their 10% ownership in the company.

RELATED TERMS
  1. Anti-Dilution Provision

    A provision in an option or a convertible security. It protects ...
  2. Dilution Protection

    A provision that seeks to protect existing shareholders or investors ...
  3. Broad-Based Weighted Average

    Early shareholders in a company may require anti-dilution provisions ...
  4. Common Shareholder

    The rights of common shareholders give them the ability to influence ...
  5. Subscription Right

    A subscription right is the right of existing shareholders in ...
  6. Rights Offering

    An issue of rights to a company's existing shareholders that ...
Related Articles
  1. Investing

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
  2. Investing

    The Dangers of Share Dilution

    Investors need to be aware of dilutive securities and how they can affect existing shareholders.
  3. Investing

    Why Do Companies Care About Their Stock Prices?

    Find out how a company's stock price reflects its value to internal and external shareholders.
  4. Investing

    Proxy Voting Gives Fund Shareholders a Say

    You have the right to take part in important company decisions by proxy.
  5. Managing Wealth

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  6. Investing

    Proxy Season 2016: Most Wonderful Time of the Year

    Each year, public companies hold shareholder meetings where individual and institutional investors vote on the future. Here is what to watch in 2016.
  7. Investing

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
RELATED FAQS
  1. What are the differences between dilutive securities and antidilutive securities?

    Learn how investors and accountants apply the terms "dilutive" and "antidilutive" to securities or the exercise of security ... Read Answer >>
  2. What can shareholders vote on?

    Understand the usual voting rights of common stock shareholders, along with the importance of shareholders exercising their ... Read Answer >>
  3. What are the advantages of ordinary shares?

    Dividends and ownership rights are two advantages of investing in ordinary shares. Read Answer >>
  4. Do Shareholders Get a Say in a Firm's Operation?

    Stock ownership often provides a vote on board membership and other issues put out for shareholder approval. Read Answer >>
  5. Can anyone own common stock in a company?

    Understand who can purchase common stock as well as the key characteristics that differentiate common stock from preferred ... Read Answer >>
  6. How do a corporation's shareholders influence its Board of Directors?

    Find out how shareholders can influence the activity of the members of the board of directors and even change official corporate ... Read Answer >>
Hot Definitions
  1. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  2. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  4. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  5. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  6. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Trading Center