Can someone just explain the general concept of dilution. My understanding is the firm ends up with a greater number of shares but the same amount of equity so the EPS goes down…is that correct? So employees trading in stock options would decrease cash but increase equity from stocks aquired. but then that wouldn’t balance on the bs? can someone please clear up for me please

Equity increases by exercise price x number of shares (assuming no buybacks). EPS goes down because you have more outstanding shares.

EPS has nothing to do with equity. It’s an income statement ratio that divides the current period’s net income by OS.

Yeah earnings are the same (numerator) but you now have more outstanding shares (denominator). Therefore you are spreading the same earnings as before out across more shares.

okay i get that EPS has nothing to do with the equity…but doesnt TA-TL= SE have to balance

if you are reducing cash but increasing equity how does that balance?

nevermind i got its treasury stock a contra-equity account i think u already answered this months ago with some others sorry I forgot