Split Stock Meaning | Split Stock Examples
In simple words Split Stock means, when a company is divided each existing share into multiple new shares without affecting its market value of each shares or each investor’s stake in the company. stock split is also known as stock divide.
What happens When Stock Splits ?
When a company declares a stock split, the number of shares increases, but the market share value remains the same. After a stock split as the number of shares increases, price per share goes down. It helps the companies to boost the stock's liquidity make it more accessible for investors .
Split Stock Examples
The decision of a stock split is taken by a company's board of directors and the most common stock splits ratios are 2-for-1 and 3-for-1 but in any ratio stock splits possible 4-for-3, 5-for-2, and 5-for-4 etc. The below example help you to understand in better way Split Stock
Suppose consider an example of Stock Split in the ration of 2- for -1 , In which a shareholder receives two shares after the split for every share they owned before the split
Lets assume that a company issued 50 shares for a market value of Rs.30 per share
Now market value is (50 x 30 = 1500)
Now company splits in the ratio 2-for-1, after splits now 100 shares of stock and The price of each share is adjusted to ( Rs 15 = 1500 / 100. )
The market value of shares is (100 × 15 = 1500 ), the same as before the split.
Benefits of Stock split : -
- Stock split adds additional shares to your current portfolio but share market value remains unchanged
- Stock split also benefits to existing shareholders, the company, and potential investors in the form of in case of existing shareholders get to hold a higher number of shares, in case of company helps to boost the stock's liquidity and in case Potential investor lower the value of each shares opens doors to looking to invest in the company
- Investment value increases if share prices rise after a stock split and vice versa
Conclusion :-
Now you clearly understand that Split Stock meaning, example of stock splits and its benefits . In case still you have any doubt you can just comment below.
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