![]() ![]() So if the stock was trading at $10 per share before the split, it would be trading at $20 per share after the split. But each share would be worth twice as much as before the split. Instead of increasing the number of shares outstanding, a reverse stock split decreases the number of shares outstanding.įor example, if you owned 10 shares of a company and they did a 1-for-2 reverse stock split, you would now own 5 shares. What is a reverse stock split?Ī reverse stock split is the opposite of a regular stock split. So, while a 2:1 split is the norm, companies have the flexibility to choose the ratio that makes the most sense for their situation. For example, in a 3:2 split, if you owned 100 shares, you'd end up with 150 shares after the split. This means that splits can be 3:1, 10:1, 3:2, or any other ratio the company chooses. While a 2:1 split is the most popular, companies can choose any ratio they want as long as it's approved by the board of directors and sometimes by the shareholders. A stock split is just a cosmetic change to the stock price. Stock splits have nothing to do with the underlying fundamentals of a company. Plus, when a stock splits and the share price goes down, more people might be interested in buying it, which could make the stock price go up again. So, a split usually happens because the company is growing or expected to grow, which is a good thing. Well, companies usually do stock splits when their stock price goes up so high that it might stop new people from investing. The only thing that changes is the number of shares outstanding and the price of each share. The business will continue to operate the same way, makes the same products, and faces the same challenges. It's important to understand that a stock split doesn't change anything about the company itself. So if you had $10,000 worth of the stock before the split, you'll still have $10,000 worth of the stock after the split. If a company you own announces a stock split, the total value of your shares won't change. Should I be worried if a company I own announces a stock split? This can boost investor confidence and attract new investors to the stock. This can make the stock more attractive to institutional investors who need to be able to buy and sell large amounts of shares quickly and efficiently.įinally, some companies believe that stock splits can help signal to the market that the company is doing well and that its stock is likely to continue to increase in value. When there are more shares available, it can be easier for investors to buy and sell them on the open market. This can make the stock more accessible to people who may not be able to afford a $1000 share but could afford a $500 share.Īnother reason is to increase the liquidity of the stock. For example, if a stock is trading at $1000 per share and the company does a 2-for-1 stock split, the price per share would be halved to $500. One reason is to make their stock more affordable to individual investors. In the same way, if a company does a stock split, the value of each individual share goes down, but the total value of all the shares put together stays the same. It's like if you had one big slice of pizza or two smaller slices - either way, you still have the same amount of pizza. So, if you owned one share before the split, after the split you might have two or three or even more shares, depending on how big the split is.īut here's the catch: even though you have more shares after the split, the total value of your investment stays the same. When a company does a stock split, they're basically cutting their existing shares into smaller pieces. So, you know when you have a pizza and you want to share it with your friends, but you only have one slice left? You could just cut that slice in half, right? Well, a stock split is kind of like that. ![]() This process has been around for over a century and has become increasingly popular in recent years. Simply put, a stock split is when a company increases the number of shares they have outstanding while simultaneously decreasing their share price. Do you ever wonder how companies like Apple, Tesla, or Amazon manage to keep their share prices relatively affordable despite their massive growth? Well, one answer lies in a financial maneuver called a stock split.īut why do companies choose to split their stock? Is it just a numbers game, or is there more to it than meets the eye? And what impact does a stock split have on investors? All great questions. ![]()
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