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What is reverse split?
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A reverse split is a corporate action in which, unlike a stock split, a company reduces the number of its outstanding shares by converting multiple shares into one. This is typically done to increase the market price of the company's shares, especially when the share price has fallen to a low level.
A reverse split does not affect the overall value of an investor's holdings, but it changes the number of shares they own.
For example, in a 1-for-10 reverse split, an investor who previously held 100 shares would now own 10 shares, but each share would be worth 10 times more. While the total value of the investment remains the same, the higher share price may make the stock more appealing to institutional investors or allow it to meet the listing requirements of a stock exchange.
Short example:
Suppose a company’s stock is trading at $1 per share.
The company announces a 1-for-5 reverse split, meaning each investor will now have one share for every five shares they previously owned.
If an investor had 100 shares, they will now have 20 shares, but each share will be worth $5 instead of $1. The total value of their investment remains unchanged at $100.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
