Fully Diluted Shares

The total amount of outstanding shares if all convertible bonds and options were exercised and converted into shares. Note that these do not include options on the stock traded on the options exchanges (though they may include warrants), and are usually stock options issued to employees and executives.

Suppose a stock has 100 million shares, and 300 million shares that can be converted. If a stock is currently trading at $50/share, it may fall to $12.5/share if the shares are all converted. Fortunately, the possible amount of dilution from conversion can be estimated via the company’s financial reports. During the dotcom era, many companies issued large amounts of stock options to employees which could potentially have had a large dilution effect (however, most of the shares became near worthless before the options were exercised).  An investor should pay close attention to make sure his holdings cannot lose a large amount of value due to dilution.

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