Definition of Stock Split
A stock split usually refers to a corporation dividing its existing number of shares of common stock into a greater number of shares. For instance, a corporation with 100,000 shares of stock before a 2-for-1 stock split will have 200,000 shares after the split. An investor owning 100 shares before the stock is split 2-for-1 will have 200 shares after the split.
Stock Price After a Stock Split
Since the corporation is not changed ( total assets , liabilities , stockholders' equity remain the same) by the stock split, the change in the number of shares will cause a change in the market price of each share. For example, if a share had been trading at $50 before a 2-for-1 stock split, a share should be trading at $25 after the stock split.
If the corporation had 100,000 shares of common stock trading at $50 per share before a 2-for-1 stock split, the total market value of the shares would have been $5 million. After the 2-for-1 stock split, the corporation's market value will also be $5 million (200,000 shares X $25 per share). This is the 游戏电竞线上外围APP v5.2 same for each investor. For example, the 10 shares owned by a small investor had a market value of $500 (10 shares X $50). After the 2-for-1 stock split, the small investor shares will also have a market value of $500 (20 shares X $25).
Why Stock Splits Occur
Stock splits such as 2-for-1, 3-for-2, 4-for-1, etc. (which increase the number of shares) are intended to decrease the market price of each share of a corporation's common stock. Often the purpose is to allow small investors to purchase 100 shares of the corporation's stock at a more reasonable total cost.
Reverse stock splits such as 1-for-10 (which decrease the number of shares) are intended to increase the market price of each share of stock . Usually the purpose is to minimize the number of small investors. To illustrate, assume that a corporation had 800,000 shares of stock that were trading at $2 per share (resulting in a total market value of $1.6 million). After a 1-for-10 reverse stock split, there will be only 80,000 shares trading at $20 per share (which also results in a total market value of $1.6 million). Prior to the reverse stock split, small investors were able to purchase 100 shares for just $200. After the stock split, an investor will need $2,000 (100 shares X $20) to purchase 100 shares.