How to Calculate Equity After Stock Dilution

by Ryan Menezes

During stock dilution, a company issues new shares, and increases the overall number of shares of the company that exist. As a result, each share represents a smaller piece of the total company. The dilution earns the company new equity from the money that shareholders pay in exchange for the stock. The company's total equity is the sum of their equity before the dilution and the equity that the new sale generates. In each case, the equity is the product of the number of issued shares and the price the investors paid for them.

1. Multiply the number of shares issued before the dilution by the stock price before the dilution. For example, if investors hold 2,000 shares in a company that each sell for $120, 2,000 × $120 = $240,000.

2. Multiply the number of shares that the company issues through the dilution by the price that investors pay for them. For example, if investors buy 400 new shares at $90 each, then 400 × $90 = $36,000.

3. Add the two sums together: $240,000 + $36,000 = $276,000. This is the company's total equity after the dilution.

About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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