Definition:
An antidilutive security is a type of security that, if converted or exercised, would increase a company’s earnings per share (EPS). This is the opposite of a dilutive security, which would decrease EPS.
Common examples of antidilutive securities:
- Warrants: Options that give the holder the right to purchase common stock at a predetermined price.
- Convertible bonds: Bonds that can be converted into common stock at the option of the bondholder.
- Stock options: Options that give the holder the right to purchase common stock at a predetermined price.
Why are antidilutive securities important?
- Earnings per share: Antidilutive securities can have a positive impact on a company’s EPS, which can be important for investors and analysts.
- Capital structure: Understanding the potential impact of antidilutive securities is important for analyzing a company’s capital structure.
It’s important to note that the dilutive or antidilutive nature of a security can change over time depending on the company’s performance and market conditions.
