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What is stock split?
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A stock split is a corporate action in which a company issues additional shares to shareholders, increasing the total number of shares outstanding while maintaining the overall value of the investment. The company typically performs a stock split when its stock price has risen significantly, making shares less affordable for individual investors.
A stock split makes shares more accessible to a broader range of investors.
During a stock split, a company divides its existing shares into multiple new shares. For example, in a 2-for-1 stock split, each shareholder receives one additional share for every share they already own, doubling the total number of shares. However, the price per share is halved, so the total value of the investment remains the same. Stock splits do not affect the company’s market capitalization or the shareholder’s proportional ownership, but they can increase liquidity by making the stock more affordable. While a stock split itself doesn’t create any real value, it can signal management’s confidence in the company’s future growth, often leading to increased investor interest.
Short example:
Suppose an investor owns 100 shares of a company at $100 per share, making their total investment worth $10,000.
If the company announces a 2-for-1 stock split, the investor now owns 200 shares, but the price per share drops to $50.
Their total investment value remains the same at $10,000, but they now have more shares at a lower price per share.
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.
