The financial meaning of Split is an adjustment made to the value of the actions of a company, without modifying the composition of the shareholders. This is a decrease in the value of each share and increase their number, respecting the monetary proportion of investors. It is also known as a stock split.
With the split, the share capital of the company does not change, since only the number of shares increases, which will mean that the unit nominal and therefore the price on the stock market decrease in the fixed proportion.
Split on the stock market
The split is intended to provide greater liquidity to the securities of a company, reduce the value of the shares in the market and improve the volumes of contracts. This will imply the production of an increase in the fractionality of the shareholder's investment.
There are different reasons for splits. One can be for the reduction of the unit price of the share because it is very high and facilitate that small shareholders enter the shareholding. It is also useful to increase the number of shares and thus achieve a greater division of the shareholders of the company to make it difficult to control unclean or a purchase of the company.
To better understand the split of a stock trade we will use an example. A company with shares worth 5 euros each decides to do the split in a 5 x 1 ratio, which means that from now on with the adjustment it will have five shares at one euro.
It must be said that the split has a neutral effect for the shareholder of the company, since for them it will be the same to have 100 shares at 5 euros, than to have 500 shares at one euro each. In any case, the value of the portfolio would amount to 500 euros each.