How does raising capital through share issuances generally affect earnings per share (EPS)?

Raising capital through share issuances typically leads to an increase in the total number of shares outstanding. This increase in the share count is significant when calculating earnings per share (EPS), which is derived by dividing net income by the number of shares outstanding. If the company does not proportionately increase its net income in line with the new shares issued, the result will be a lower EPS.

This dilution occurs because even if the company's profits increase after the capital raise, if it does not achieve sufficient growth in earnings per share to match the greater number of shares, the EPS can actually decrease. Therefore, a rise in share count without a corresponding increase in earnings generally leads to reduced EPS, reflecting a dilution of ownership among existing shareholders and potentially diminishing the perceived value of the stock.