What a Stock Split Is
A stock split is a corporate action in which a company divides its existing shares into multiple new shares to boost the liquidity of the stock. For example, a company with 100 shares outstanding might declare a 2-for-1 stock split, meaning that each shareholder would end up with two shares for each one they owned before the split.
How a Stock Split Works
A stock split is usually accompanied by a simultaneous increase in the company's authorized share count. This is because the company is essentially creating new shares out of thin air, so it needs to increase the number of shares that it is allowed to issue.
The price of the stock is also adjusted downward in a stock split. For example, if a company's stock is trading at $100 per share and it declares a 2-for-1 stock split, the price of the stock would be cut in half to $50 per share. This is because each shareholder now owns twice as many shares, so the total value of all the shares outstanding is unchanged.
Stock splits are typically done in order to make the stock more affordable and therefore more attractive to potential investors. They can also be done to boost the liquidity of the stock, since there are now twice as many shares outstanding.
Example of a Stock Split
Let's say that ABC Corporation has 100,000 shares of common stock outstanding, trading at $50 per share. The company's board of directors decides to declare a 2-for-1 stock split.
After the split, there will be 200,000 shares of common stock outstanding, each trading at $25 per share. ABC Corporation's authorized share count will also be increased to 200,000 shares.
The total value of the company's stock remains the same after the split. ABC Corporation's shareholders now each own twice as many shares, but each share is worth half as much.
Why is a stock split good?
A stock split is a corporate action in which a company's existing shares are divided into new shares. The new shares are typically issued in a 2-for-1 or 3-for-2 ratio, meaning that shareholders will receive two or three new shares for each share they own.
Stock splits are generally seen as a positive event by the market, as they can signal that a company's stock is performing well and that its management believes that the stock is undervalued. Stock splits can also make shares more affordable for small investors and make it easier to trade large blocks of shares. What is a 10% stock split? A 10% stock split is a corporate action in which a company's existing shares are divided into 10 new shares. The new shares are typically distributed to shareholders at no cost. This type of stock split is usually undertaken to make shares more affordable for investors and to boost liquidity. Is it better to buy stock before or after split? It is generally better to buy stock before a split, because the shares will be cheaper and the company will likely be doing well. After a split, the shares will be more expensive but the company may not be doing as well.
What is an example of splitting?
One example of splitting is when a company's stock price gets too high and the company decides to split the stock. This means that each share of the company's stock will be worth half as much as it was worth before the split. This is often done to make the stock more affordable for small investors.
What is a 25 to 1 reverse stock split? A 25 to 1 reverse stock split is a corporate action in which a company's stock is reduced to one twenty-fifth of its original value. For example, if a company's stock is trading at $10 per share and it undertakes a 25 to 1 reverse stock split, the new stock price will be $0.40 per share. This type of corporate action is usually undertaken when a company's stock price has fallen to very low levels and the company wants to boost the price by reducing the number of shares outstanding.