Capital increase (rights issue)
A capital increase is the issue of new shares by a company to raise money. When it comes with pre-emptive rights, every shareholder receives rights in proportion to their stake and can take them up, sell them or let them lapse. The issue price is usually below the market price, which is why the quote adjusts by averaging old and new shares.
How it is calculated
A company with shares at €10 issues one new share for every four old ones at €8. Someone who held four shares (€40) puts in €8 and ends up with five shares worth, in theory, €48 in total: €9.60 each. That is the theoretical ex-rights price, and the €0.40 separating the €10 before from the €9.60 after is the theoretical value of the subscription right. Someone who neither takes up nor sells their rights loses that €0.40 per share: the dilution is real, not an accounting entry.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is NOT
It is not necessarily bad news or good news: it depends on what the money is for. Issuing shares to buy a business that returns more than the cost of capital creates value; issuing them to cover losses or repay expensive debt destroys it. Nor is it a stock split: in a split the share count rises without new money coming in, and here it does. And a bonus issue (funded from reserves) raises no money: it is the instrument through which a scrip dividend is paid.
Formula
Theoretical ex-rights price = (old × price + new × issue price) ÷ (old + new) See also
Free float · EPS (earnings per share) · Market capitalisation
Explained in depth
See it on real data
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.