How to Use the Rights Offering Dilution Calculator
A rights offering gives existing shareholders the right to buy new shares at a discounted subscription price, in proportion to what they already own. Once the new shares are priced in, the stock trades at a theoretically lower ex-rights price (TERP). Enter the cum-rights price, subscription price, subscription ratio, and shares held, and this calculator returns TERP along with your estimated profit from subscribing.
TERP is a weighted average of the value of your existing shares and the newly issued shares — the deeper the discount on the subscription price relative to the current market price, the bigger the drop. Keep in mind this is a theoretical figure; the actual market price can diverge based on why the company is raising money (working capital versus growth investment, for example) and how investors react to the news.
If you exercise your rights and buy shares at the subscription price, you capture the difference between TERP and the subscription price as a theoretical gain. If you let your rights lapse instead, your existing position is still diluted down to TERP — so check this calculation before deciding whether to subscribe, sell the rights (where transferable), or do nothing.
Frequently Asked Questions
TERP equals (cum-rights price + subscription price × subscription ratio) divided by (1 + subscription ratio) — a weighted average of the value of old shares and new shares.
Declining your rights means your existing shares still get diluted down to the ex-rights price, so shareholders who don't want to subscribe often sell the rights themselves instead, where that's permitted.
Unsubscribed shares are typically reallocated or placed with other investors under a standby agreement. This calculator assumes you subscribe for your full allotment.