What is a stock split?
The division of a company’s existing stock into more shares. In a 2-for-1 split, each stockholder would receive an additional share for each share formerly held. This is usually a good indicator that a company’s share price is doing well. But you don’t get any more value, just twice as many shares.
If a company thinks the price of its stock is too high to attract investors, it can split the stock – that is, give stockholders more shares and revalue the stock at a lower price. If the stock is split two for one, the price is cut in half and the number of shares is doubled. Initially, the total value of your stock is the same – like getting two nickels for a dime. For example, if you had 100 shares of a stock selling for $80 a share that split two for one, you’d have 200 shares valued at $40 a share. But if the price climbs back toward its presplit price you might end up with 200 shares valued at $80 a share. Of course, there’s no guarantee that will happen. Stocks can split three for one, three for two, ten for one or any other combination. There can even be a reverse split, where you exchange more shares for fewer. If the reverse split is 10 for 5, each new share will be worth twice as much as an old one. Reverse splits can make a stock attractive to many institutional investors w
All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision by the company’s board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1 stock split, every shareholder with one stock is given an additional share. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split. A stock’s price is also affected by a stock split. After a split, the stock price will be reduced since the number of shares outstanding has increased. In the example of a 2-for-1 split, the share price will be halved. Thus, although the number of outstanding shares and the stock price change, the market capitalization remains constant. A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of simi
A stock split is an action by a publicly traded company that has the effect of increasing the number of shares outstanding on the market. For example, in a two-for-one stock split, a company with ten million shares outstanding will split each share in half, so that there will be 20 million shares. When a stock split occurs, the price of a stock is cut proportionally. Again, using the two-for-one example, a stock that is worth $50 U.S. Dollars (USD) before the split will be worth $25 USD per share after. When a company is planning a stock split, the action must be approved by the company’s board of directors, as well as its major shareholders, if it is to occur. Although a company may choose to split its stock when its price is rising, the actual split as such does not affect the market capitalization or value of the company. A company’s market capitalization is equal to the number of existing shares, multiplied by the share price. When the number of shares doubles, the price of one sha
Even if you’re just slightly familiar with the stock market, you’ve probably heard of a stock split. It’s a rather interesting concept that requires giving more shares of a stock to stockholders, then lowering the price of a stock. In the long run, it’s usually a good thing for investors. Here’s how it works. Let’s say company ABC has a stock price of $100 per share. At that price, many investors will probably not buy it, simply because the price has gotten so high that it will cost a lot of money just to buy a few shares. So the board of directors at ABC decide that it’s time to split the stock, 2 shares for 1. This means that you will get two shares in exchange for every one share that you already own. The stock price will then be adjusted lower so that the market value is the same.
