It’s hard to believe that the end of this week will be the quarter mark
for the course: week 2 of 8!
Dilutive and antidilutive securities are more complex than the
“normal” stocks that have been previously studied and discussed.
These securities are both effects on one’s common stock and how
“diluted” earnings are. While these are opposite effects and one may
seem more beneficial than another depending on one’s perspective,
both convertible securities aid in determining the financial health of a
company. Dilutive convertible securities would increase the number
of stocks, thus diluting the earning per share. Increasing shares also
decreases the power of individual shareholders, decreasing the
impact of their votes and devaluing their opinions. Antidilutive
convertible securities are actions that decrease the number of stocks,
thus increasing earnings per share and increasing the power of
shareholders. With the clarification of what these securities are, now
one must consider this information from the perspective of a
shareholder.
Shareholders will pay attention to these securities as they determine
the amount of influence the shareholder has as a sponsor and part of
a company. Antidilutive convertible securities would likely be more
sought after than dilutive securities, as they would increase the
individual’s voting power and their earnings per share rather than
decrease them. Earnings per share are not the be-all-end-all of
determining whether one should invest or not, but it is one tool to use
and consider when making a choice. Investing during a dilutive
opportunity could be advantageous to new investors, allotting them a
lower-risk opportunity to obtain securities in preparation for future
changes and increases in stock values.
References
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate
accounting: Reporting and analysis. Boston, MA: Cengage Learning.
