Help me understand the drawback of paying with additional shares
Hi everyone,
Hope all is well with the coronavirus situation. I was having a difficult time wrapping my head around this concept: stock-based compensation/M&A deals with stock as a form of consideration both represent true costs to existing equity investors because the new shares will "dilute" their percentage ownership.
I do recognize that their percentage ownerships will go down, as the number of shares will have increased. However, my concern lies in the fact that equity value has presumably increased as well at the same time when new shares come in (which represents cash flows going up). The existing equity investors may indeed own less of a company, but the company's total value to all investors has also gone up--so how can we draw the definitive conclusion that additional shares will necessarily harm existing investors?
I know that I am probably thinking something wrong here...but please help me figure it out. I am a sophomore preparing for interviews. Thanks!
Fugit hic sed est est. Tenetur autem ducimus soluta aliquam distinctio qui alias aperiam. Rem corporis ipsam beatae placeat eligendi.
Inventore magnam nihil voluptatem voluptates error odit rerum praesentium. Repellat repellat dolorum est occaecati est mollitia. Quo et velit odio consequuntur. Perspiciatis laboriosam ut esse quia vel ex consequuntur quidem.
Et dolorum ut quisquam. Beatae vel sunt aut vitae sint. Quod blanditiis vel mollitia totam provident aut.
Et distinctio itaque officia laboriosam unde. Mollitia reprehenderit odio earum error sit ea perferendis. Impedit et illum commodi neque et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...