How to calculate the diluted shareholding?
What Is Share Dilution?
- Share dilution occurs when the ownership percentage of existing shareholders decreases
- This usually happens when a company issues new shares to raise funds from investors
How Is the Number of New Shares Calculated?
- Assume the company plans to give a new investor 10% ownership
- Formula:
- New Shares = Existing Shares ÷ (1 − Dilution Percentage) − Existing Shares
Example
- Company's existing position:
- 100,000 shares
- RM100,000 capital
- The company decides to dilute 10% equity
- And raises RM1,000,000 from a new investor
Shareholding Structure After Dilution
- New investor receives:
- 11,111 shares
- 10% ownership
- Existing shareholders retain:
- 100,000 shares
- 90% ownership
Result After Fundraising
- Total shares outstanding:
- 111,111 shares
- Total company capital:
- RM1,100,000