antidilutive

Antidilutive is an adjective used in finance and accounting to describe actions, provisions, or instruments that prevent or offset the dilution of an existing investor’s ownership stake or of earnings per share (EPS). The term is most often encountered in the contexts of corporate finance, equity financing, and accounting for earnings calculations.

In corporate finance, antidilution provisions are clauses attached to preferred stock or convertible securities that adjust price or conversion ratios if new shares are issued at a lower price than previously paid (a down round). The purpose is to protect early investors from the ownership or value loss that would come from additional issuances. Two common forms are full-ratchet and weighted-average antidilution. Full-ratchet lowers the conversion price to match the new round, regardless of the number of new shares, while weighted-average adjusts the price based on a formula that factors in both price and share count. Antidilution provisions can affect future fundraising dynamics and may influence negotiations with new investors.

In accounting, antidilutive securities are those whose inclusion in the calculation of diluted earnings per share would not reduce, and may even increase, earnings per share. Under standard accounting rules, such securities are excluded from the diluted EPS calculation. Examples include certain stock options or warrants when their exercise price is substantially above the average share price, making their inclusion not dilutive to EPS.

The term antidilutive is distinct from dilution itself; both are central concepts in evaluating the impact of equity issuances, employee compensation plans, or corporate restructurings on ownership and reported metrics.