Stock Split

When a company wants to increase the liquidity of its shares, they divide the existing shares into multiple new shares. In other words, a company stock split is when they decrease the price of the share by splitting each share into two or more shares. The shareholder’s overall stock value will not change and nor will the market capitalization of the company.

A stock split will lower the individual share price. Small investors who could not buy the share at a high price, say $900, will now be attracted to the lower stock price after the split. A business can take one share and split it into two or three shares. If they split it into two, both shares’ total value will be equal to the price of the old individual share.

Let’s say a company XYZ has completed the stock split of 2-for 1. Before the stock split, the original share price was $50 per share; this means that the new share price after the split will be $25 per share after the stock split.

A stock split is a common thing to do in multi-billion dollar public companies. These big companies grow in value due to product launches, share repurchases, and acquisitions. In the future, at a point in time, the quoted market value of the company stock rises to a point where it becomes costly. Regular investors cannot afford these high prices, the number of investors who can afford to buy the shares fall, thus reducing the shares’ market liquidity. So these companies undergo a stock split to attract more investment into the firm.