Fully Diluted Shares Definition

Definition: Fully Diluted Shares refers to the total number of shares that would be outstanding assuming that all possible sources of conversion (e.g., convertible bonds and stock options) have been exercised and converted to ordinary shares.

If full dilution is exercised, the number of shares from which you are entitled to receive a certain percentage according to the valuation of the company will be higher, and therefore the number of shares actually received will also be higher.

For example, Monitor Ltd. has two million shares outstanding, two million options outstanding (assuming each option gives the right to buy one share) and the share price is $6.00 each. If all investors decide to exercised their options, there would be 4 million shares outstanding and the share price would likely drop to $3.00 each.

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