Fully Diluted Shares Definition

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Definition Of Fully Diluted Shares:

The total number of shares that would be outstanding if all possible sources of conversion, such asconvertible bonds andstock options, were exercised.
Companiesoften releasespecific financial figuresin terms of fully diluted shares outstanding (such asthe company’s profits reported on a fully diluted per share basis)to allow investors the ability toproperly assess the company's financial situation.An investor should considercarefully the fully diluted share amount because it cancause a company'sshare price toplummet significantly if a large number of optionholders or convertible bond holders decide toclaim their stock.For example,let's say that XYZ Corp. currently has 1 million shares outstanding, 1 millionoptionsoutstanding (assuming eachoptiongives the right to buyone share)and its share price is$5.If everyone decides to exercised their options, there would be 2 million shares outstanding and the share price would likelydrop to$2.

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