A stock split is when a company increases the number of its outstanding shares by issuing more shares to current shareholders. This is typically done to make the stock more affordable and attractive to a broader range of investors without changing the company’s market capitalization.
In a stock split:
The total value of your holdings remains the same, but the number of shares you own increases.
The price per share decreases proportionally.
Example:
Let’s say you own 100 shares of a company trading at $200/share:
Total value = 100 × $200 = $20,000
If the company announces a 2-for-1 stock split:
You’ll now own 200 shares
The price per share becomes $100
Your total investment value remains $20,000
Forward Split (e.g., 2-for-1, 3-for-1): You get more shares at a lower price.
Reverse Split (e.g., 1-for-10): You get fewer shares at a higher price (often done to meet listing requirements or improve perception).
To increase liquidity
To make shares seem more affordable
To attract retail investors
To signal confidence in future growth