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What happens when stocks split?
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11th Nov 2009 by Daniel Cross, ChFC
There are two types of stock splits: normal and reverse. In a normal stock split, a company lowers it's share price but issues more stock equivalent to the split ratio. For example: XYZ company has a 2:1 stock split and their stock is priced at 100.00 a share and an investor owns 25 shares. After the split, the investor will hold 50 shares at 50.00 a share creating an overall wash. A stock split is seen as a good sign usually and can cause an increase in share value.
A reverse stock split works in a similar fashion, only the other way around. Instead of cutting share price and increase the amount of stock, the amount is cut thereby boosting stock price. This is normally seen as a negative sign and will cause the value of the stock to drop upon it's announcement.
There are two types of stock splits: normal and reverse. In a normal stock split, a company lowers it's share price but issues more stock equivalent to the split ratio. For example: XYZ company has a 2:1 stock split and their stock is priced at 100.00 a share and an investor owns 25 shares. After the split, the investor will hold 50 shares at 50.00 a share creating an overall wash. A stock split is seen as a good sign usually and can cause an increase in share value.
A reverse stock split works in a similar fashion, only the other way around. Instead of cutting share price and increase the amount of stock, the amount is cut thereby boosting stock price. This is normally seen as a negative sign and will cause the value of the stock to drop upon it's announcement.
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10th Nov 2009 In Stocks
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Subjects: stocks split,