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Meaning / Definition of

Dilution

Categories: Fundamental Analysis, Legal, ,

Dilution occurs when a company issues additional shares of stock, and as a result the earnings per share and the book value per share decline. This happens because earnings per share and book value per share are calculated by dividing the total earnings or book value by the number of existing shares. The larger the number of shares, the lower the value of each share. Lower earnings per share may trigger a selloff in the stock, lowering its price. That's one reason a company may choose to issue bonds rather than new stock to raise additional capital.Similarly, if companies merge or one buys another, earnings may be diluted if they don't increase proportionately with the combined number of shares in the newly created company.Dilution can also occur if warrants and stock options on a stock are exercised, and if convertible bonds and preferred stock the company issued are converted to common stock. Companies must report the worst-case potential for such dilution, or loss of value, to their shareholders as diluted earnings per share.

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Definition / Meaning of

403(b)

Categories: Finance,

A 403(b) plan, sometimes known as a tax-sheltered annuity (TSA) or a tax-deferred annuity (TDA), is an employer sponsored retirement savings plan for employees of not-for-profit organizations, such as colleges, hospitals, foundations, and cultural institutions. Some employers offer 403(b) plans as a supplement to - rather than a replacement for - defined benefit (pension)s. Others offer them as the organization's only retirement plan.Your contributions to a traditional 403(b) are tax deductible, and any earnings are tax deferred. Contributions to a Roth 403(b) are made with after-tax dollars, but the withdrawals are tax free if the account has been open at least five years and you're 59 1/2 or older. There's an annual contribution limit, but you can add an additional catch-up contribution if you're 50 or older.With a 403(b), you are responsible for making your own investment decisions by choosing from among investment alternatives offered by the plan. You can roll over your assets to another employer's plan or an IRA when you leave your job, or to an IRA when you retire.You may withdraw without penalty once you reach 59 1/2, or sometimes earlier if you retire. You must begin required withdrawals by April 1 of the year following the year you turn 70 1/2 unless you are still working. In that case, you can postpone withdrawals until April 1 following the year you retire.

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