Dilution in action

July 17, 2009 in Finance

A lot of sites are reporting Bank of America's year-over-year income comparison without batting an eye:

Bank of America posted income of $3.22 billion, or 33 cents a share, down from $3.41 billion, or 72 cents a share, a year earlier.

The number wasn't particularly surprising (EPS slightly beat, revenue slightly missed) but couldn't anyone spend a paragraph on how $3 billion a year ago was worth over twice as much per share than it is today? The closest was the WSJ, which supplied a single sentence:

The company had 64% more shares outstanding in the most recent period amid its capital-raising efforts.

It's not a complicated matter, but here the effects of shareholder dilution are dramatically illustrated; this is the real price paid for government aid. The dollar figure is important as well, but now it takes twice as much profit for each individual shareholder to benefit as much as they would have a year ago.

Denominators matter.

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