What is a stock split and is Stock Split good? | What is a Reverse Stock Split ?
A stock split is when a company divides the existing shares of its stock into multiple new shares to boost the stocks liquidity, which may helps Capital Formation. Although the number of shares outstanding increases by a specific multiples, the total Price value of the shares remains the same compared to pre-split amounts, because the split does not add any real value.
The most common stock split ratios are 2-for-1 or 3-for-1 (Can be called as sometimes or convenience 2:1 or 3:1), which means that the stockholder will have two or three shares after the split takes place, respectively, for every share that stock holder owns.
A stock split is when a company divides the existing shares of its stock into multiple new shares to boost the stock’s liquidity. A stock split is when a company’s board of Owners/directors/Stake Holders issues more shares of stocks to its current shareholders without diluting the value of their stakes. A stock split increases the number of shares outstanding and lowers the individual value of each share. While the number of shares outstanding change, the overall valuation of the company and the value of each shareholders/Stock Holders stake remains the same.
Generally When a company declares a stock split, the number of shares of that company increases in volume, but the market cap remains the same. Existing shares split, but the underlying value remains the same. As the number of shares increases, price per share goes down sometimes as per market demand.
Stock split is done to infuse liquidity and to make shares affordable for various investors who could not buy the shares of that company before due to high prices.
Is a stock split and is it good???
Splitting the stock brings the share price down to a more attractive level. While the actual value of the stock doesn’t change one bit, the lower stock price may affect the way the stock is perceived, may attract new investors or satisfy existing investors
What is Reverse Stock Split ? is it good ??
Reverse stock splits are effectively the opposite transaction, where a company divides, instead of multiplies of shares, the number of shares that stockholders owns, raising the market price accordingly. A reverse stock split reduces a company’s number of shares outstanding. If you owned 100 shares of a stock in a company, for example, and the board of directors announced a 2-for-1 reverse stock split, you will end up with five shares of stock. The total value of your shares would remain consistent. On the other hand, a reverse stock split is often aimed at helping a company meet the minimum requirements to remain listed on an exchange.
Why Do Companies Split Stock?
Generally in many cases company will consider a stock split is a strategy used by companies to meet a specific goals. Companies often like the idea of creating more liquidity by making a price more attractive and attainable for a larger number of people. Simple Strategy More price less crowd of Investors where as Less Price More Crowd of Investors.