Antidilutive definition
/What is Antidilutive?
A financial transaction is considered to be antidilutive when the outcome is an increase in earnings per share, either by increasing earnings or reducing the number of shares outstanding. Antidilutive transactions are excluded from the calculation of fully diluted earnings per share.
Antidilutive Examples
Here are several examples of the antidilutive concept:
Bond retirement. An issuer of convertible bonds retires the bonds. This is an antidilutive activity, since the number of potential shares declines.
Share buyback. A company initiates a share buyback program, where it spends $5 million to buy back 100,000 shares from investors. This is an antidilutive activity, because the number of outstanding shares has been reduced.
Stock option expiration. A stock option expires without being used by the option holder. This keeps the issuer from having to issue any additional shares, and so is antidilutive.
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What is Dilutive vs. Antidilutive for EPS?
Dilutive and antidilutive refer to the impact of potential common shares on earnings per share (EPS). A security is dilutive if its conversion into common stock decreases EPS, meaning it would increase the total number of shares and reduce earnings available per share. In contrast, a security is antidilutive if its conversion increases EPS or has no impact, typically because the additional earnings or cash flows outweigh the increase in share count. When calculating diluted EPS, only dilutive securities are included, while antidilutive ones are excluded to avoid overstating earnings per share.
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