Dilutive
Describing a transaction that reduces earnings per share or ownership percentage for existing shareholders, typically by issuing new shares. The opposite of accretive.
Used in the Books
This term appears in 2 chapters:
"...t reserves*: Airlines, cruise lines, retail chains - burn through cash in weeks. Must raise emergency capital at terrible terms (high interest debt, dilutive equity). Many file bankruptcy. Cook's cash reserves = survival buffer that enabled Apple to not just survive but invest* during the crisis while co..."
"...her. - Breaking the vortex: Aggressively delever during good times (use profits to pay down debt, not to expand). If vortex starts, raise equity (dilutive but breaks debt cycle) or sell assets to pay down debt. - Example: Sears accumulated $13B debt, couldn't service it, and spiraled to bankruptcy."
Biological Context
Dilution occurs in biological populations too. Gene flow from immigrants dilutes local adaptations. Invasive species dilute native biodiversity. Chemical signals become diluted with distance, reducing their effectiveness. Concentration versus dilution is a fundamental biological trade-off.
Business Application
Equity funding is dilutive—existing owners give up percentage ownership for capital. The trade-off is smaller slice of larger pie. Dilution is acceptable if growth in company value exceeds dilution of ownership. Excessive dilution can demotivate founders and early employees.