Dilution Theory

Dilution Theory refers to the concept of how the ownership percentage of existing shareholders decreases when a company issues new shares. Imagine a pizza divided among friends: if a new friend joins and the pizza is cut into more slices, each person's share is smaller. In business, when a company raises money by offering additional shares to new investors, existing shareholders own a smaller portion of the company. While this can provide necessary funding for growth, it can also reduce the value of the existing shares if the new investments do not lead to proportional gains in the company's overall success.