Stock Split

A stock split occurs when a company increases the number of its outstanding shares by issuing more shares to existing shareholders while simultaneously reducing the share price. The overall market capitalization of the company remains the same, but each shareholder holds more shares at a lower price per share. Stock splits are typically executed to make shares more affordable for retail investors and to increase liquidity.

Example

If a company announces a 2-for-1 stock split, a shareholder who owns 100 shares at $100 per share will now own 200 shares at $50 per share, but the total value of the holdings remains unchanged.

Key points

• Increases the number of shares outstanding while reducing the share price.

• Used to make shares more affordable and increase liquidity.

• Does not affect the overall value of a shareholder’s investment.

Quick Answers to Curious Questions

Why do companies perform stock splits?

Companies split their stock to make shares more affordable for retail investors and increase trading liquidity.

How does a stock split affect the price of individual shares?

The price of each share is reduced in proportion to the split, but the overall market value of the company remains the same.

How does a stock split differ from a stock dividend?

A stock split increases the number of shares while reducing the price per share, whereas a stock dividend distributes additional shares to shareholders without changing the price.