Stock Splits

Stock Splits

It is a really interesting topic to discuss. This is when a company declares a stock splits, the number of shares of that company increases. However, the market capitalization remains the same. Overall, the total value of the company has not changed, just each share now has a lower price. This is sometimes done when a share price has increased too much and the price has become undesirable for some investors and funds. The company may then elect to have a share split, in which investors are given new shares in proportion to the amount they own. The total company value remains the same, just each shares are worth less. In addition, by increasing the amount

 of shares on the market the liquidity of the stock can increase. Liquidity is an investors ability to sell or buy shares without affecting price. By increasing the amount of shares available the liquidity of the stock will increase which is why companies undergo a stock split.  

 

For example, if you own 1000 shares of a company, and the company decides 1:2 stock split, that means you will get 1 new share for each 2. Therefore, you will have 1500 shares after the stock split.