About Equity Dilution Calculator (Formula)
An Equity Dilution Calculator is a financial tool used to assess how the ownership percentage of existing shareholders in a company changes when new shares are issued or when equity-based compensation like stock options or convertible securities are granted. Equity dilution can occur when a company raises capital, and it’s important for both existing and potential shareholders to understand how this affects their ownership stake.
The formula for calculating equity dilution is as follows:
Equity Dilution (%) = [(New Shares Issued or Granted) / (Existing Shares + New Shares Issued or Granted)] x 100%
Where:
- Equity Dilution (%) represents the percentage by which existing shareholders’ ownership is diluted.
- New Shares Issued or Granted is the number of additional shares issued or granted to employees, investors, or other parties.
- Existing Shares refers to the total number of shares held by existing shareholders before the new issuance.
This calculator is valuable for founders, investors, and employees of startups and growing companies. It helps them understand the impact of equity-related transactions on their ownership stakes and allows for informed decisions regarding equity compensation, fundraising, and equity distribution.