Definition of Dilution

Dilution is a financial concept to represent a decrease in value and can apply to either a transaction or a bond. For both, it refers to the fact that value is lost purely on paper.

In a transaction, dilution is the decrease in Earnings Per Share after a merger or acquisition has taken place. If the Earnings Per Share decreases, then the transaction is usually seen as being a bad one.

For a bond, dilution is the decrease in bond price between time of trade and maturity.