This week’s question

I trace my roots back to a hardware store in North Wilkesboro, N.C., in 1921. For a long time, my main customers were professional homebuilders, but when fewer new homes were built in the early 1980s, I began transforming my stores to be more oriented toward do-it-yourself consumers. My new layouts were designed to appeal to women as well as men. Today I rake in sales of more than $26 billion annually, serving some 9 million customers per week at more than 900 stores in 45 states. I’m the second-largest home improvement retailer in the world. Who am I?

Last week’s answer: Callaway Golf.

Dilution

What does it mean when a company’s stock gets diluted? — M.D., Richardson, Texas

Stock dilution happens when a company issues additional shares — decreasing, or diluting, the value of existing ones. For example, imagine In-Your-Face Telemarketing Inc. (ticker: RINGG), which has 100 million shares outstanding, trading at about $50 each. Its current market value is $5 billion (100 million times $50 equals $5 billion). Let’s say that in order to raise money, it issues an additional 10 million shares. The company is still valued at about $5 billion, but now that’s divided among 110 million shares — so each share is worth roughly $45. The shares have been diluted in value.

If the money raised is used to generate additional sales and earnings, long-term economic dilution might not occur. But if shares are issued to finance value-destroying projects or overly generous stock-option awards, then dilution is certain.

Companies are required to report earnings per share (EPS) in two formats: basic and diluted. Focus on diluted numbers, as they incorporate stock options, warrants, preferred stock and convertible debt securities, all of which can be converted into common stock, diluting the value of existing shares.

Can you recommend a good book about Warren Buffett? — C.S., Columbus, Ohio

Roger Lowenstein’s “Buffett: The Making of an American Capitalist” (Doubleday, $19) is terrific. It covers his fascinating life (so far) and also offers a great introduction to his principles and investing beliefs.

Grab your 15 minutes of fame and ask a financial question or share your thoughts with Fool co-founders David and Tom Gardner on The Motley Fool Radio Show on National Public Radio. Call anytime toll-free at (866) NPR-FOOL.