Final lesson: calculate one company from beginning to end
Separate current facts, potential obligations, and conditional financing capacity instead of chasing one alarming total.
The question: how much potential dilution does Pinecone Coffee have?
Every number below is fictional and used only for teaching:
- On August 1, authorized is 1,000, issued and outstanding are both 100, and Treasury Stock is zero.
- On August 10, the company issues 25 shares. On August 20, it repurchases 10 shares from other stockholders. As of August 30, issued is 125, Treasury Stock is 10, outstanding is 115, and authorized but unissued is 875.
- The 300-share registration statement filed on August 22 later becomes effective; neither event changes those counts.
- A Private Investment in Public Equity (PIPE) closed on August 31 and issued 20 shares.
- 10 warrants remain; each can become one share and none has been exercised.
- A convertible has $600 of principal, converts at 80% of market price, and has a $4 floor.
- An At-the-Market Offering (ATM) has a $600 remaining headline amount, but Lesson 8 found only $200 currently usable; no sales have been disclosed.
Step 1: update facts that have happened
The latest August 30 outstanding balance is 115. The PIPE closed and delivered 20 shares on August 31, so update it:
Current evidenced outstanding = 115 + 20 = 135
Issued rises from 125 to 145, authorized but unissued falls from 875 to 855, and Treasury Stock stays at 10. Keep the current 135 separate from every later possibility.
| Date | Completed event | Issued | Treasury Stock | Outstanding | Authorized but unissued |
|---|---|---|---|---|---|
| August 1 | Opening ledger | 100 | 0 | 100 | 900 |
| August 10 | Issue 25 new shares | 125 | 0 | 125 | 875 |
| August 20 | Repurchase 10 without retiring them | 125 | 10 | 115 | 875 |
| August 22 | File registration statement | 125 | 10 | 115 | 875 |
| August 31 | PIPE issues 20 new shares | 145 | 10 | 135 | 855 |
Step 2: calculate fixed-count potential shares
Ten warrants at one share each:
Potential warrant shares = 10
They remain unexercised, so they belong in a scenario, not current shares outstanding.
Step 3: create price scenarios for the variable instrument
The convertible price is 80% of market, but no lower than $4.
| Assumed market price | 80% calculation | Actual conversion price | Potential shares |
|---|---|---|---|
| $10 | $8 | $8 | 75 |
| $5 | $4 | $4 | 150 |
| $3 | $2.40 | $4 floor applies | 150 |
Step 4: keep ATM capacity conditional
The ATM headline amount remains $600, but the narrowest current limit allows only $200. If that currently usable $200 were eventually sold:
- At $10 per share, it would add about 20 shares.
- At $5 per share, it would add about 40 shares.
There is no sales evidence today, so neither belongs in the current count. Calculating from the full $600 would first require evidence that Lesson 8's $200 constraint changed. Also verify whether the ATM shares shelf capacity with another program.
Step 5: give the user a three-layer answer
| Layer | Result | Meaning |
|---|---|---|
| Current evidenced | 135 shares | Issuance is supported as completed |
| Instrument scenario | 220–295 shares | Current + warrants + convertible price cases |
| Conditional case with ATM | 240–335 shares | Assumes full use of the currently usable $200 ATM capacity; this is not a forecast |
The outer calculations are:
- Higher-price case:
135 + 10 + 75 + 20 = 240 - Lower-price case:
135 + 10 + 150 + 40 = 335
The original 10-share holder also remains in the same ledger. Ownership moves from 10 ÷ 100 = 10% on August 1 to 10 ÷ 135 ≈ 7.41% after the PIPE; the intervening repurchase temporarily raised it from 8% to about 8.70%.
Ask these five questions for any ticker
- What is current shares outstanding, and as of what date?
- Which issuances closed, and which are only registered or committed?
- What warrants and convertibles remain, and what do their contracts say?
- Which shelf, Baby Shelf, authorized-share, exchange, or contract constraint is smallest?
- Is any capacity shared, counted twice, or missing a key term?
Remember at graduation
An honest dilution result is “current facts + conditional scenarios + dates + assumptions + unknowns,” not one giant number without a trail.
Continue with primary sources
U.S. Securities and Exchange Commission (SEC): Offering Pathways