When a firm issues more stock, does this mean it increases its equity value, since more share are outstanding -- and does this value go into when calc. enterprise value? Im a little confused on the concept of stock dilution. Could someone explain what would happen if a company issues more stock? I know it would affect the shareholders equity, right?
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the firm sells the stock, so cash increases, as does shareholder's equity (equal changes to balance)
the stock price shouldn't change based on the issuance of additional stock alone, but it often does because issuing stock has negative connotations (overvalued, can't get cheap credit, etc.)
oh, and enterprise value unchanged. equity value up, but since you are adding net debt (add debt, subtract cash), it remains the same. capital structure is irrelevant to Enterprise value.
Gotcha , but if a firm issues more shares, wouldn't the share price fall to compensate for the increase in shares outstanding, in order to have relatively the same market cap or equity value?
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