The percentage change in shares outstanding over the past year. Below 0% (shrinking share count) is ideal. Above 2% is a yellow flag. Above 5% indicates aggressive stock issuance that erodes per-share value.
Formula
Description
Measures the percentage change in shares outstanding over the past year. Positive values indicate dilution (more shares issued), which reduces each existing share's claim on earnings and assets. Chronic dilution is one of the most overlooked destroyers of shareholder value, especially in technology companies that issue stock-based compensation.
Interpretation
Below 0% (shrinking share count) is ideal - it means buybacks exceed issuance. Above 2% annual dilution is a yellow flag. Above 5% is a red flag indicating aggressive stock issuance. Always check whether buybacks reported by the company actually reduce share count or merely offset dilution from stock compensation.
Related Risk Indicators
Whether gross margins are improving or declining over five years. A positive trend means the company is gaining pricing power or reducing costs. Negative trends in a mature business are a warning sign.
Whether bottom-line profitability is improving or declining over five years. A positive trend indicates the business is becoming more profitable. The most durable improvement comes from expanding gross margins rather than cost-cutting.
The lowest ROIC recorded over five years. A company with a high minimum ROIC (above 10%) maintains strong returns even in bad years, indicating a genuinely strong business with a durable competitive advantage.
Measures the accrual component of earnings relative to total assets. When cash flow exceeds reported earnings, the company has high-quality earnings. Large accruals relative to assets are a red flag for potential manipulation.
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