Stock split is a financial term any investor should aware. In this week, The Money Maniac explaining this term to get you better knowledge on the same.
Here is a fantastic definition on the term ‘Stock Split’ from business dictionary for your knowledge:
Division of already issued (outstanding) shares of a firm into a larger number of shares, to make them more affordable and thus improve their marketability—while maintaining the current stockholders’ proportional ownership of the firm. The aggregate value of the shares remains the same as before the split, but the price (and dividend) per share declines with the split ratio. For example, if the shares are split by a multiple of two (2:1 split), a share with a par value of $10 becomes two shares, each with a par value of $5.
Here is another comprehensive definition from Financial Dictionary on the same.
When a company wants to make its shares more attractive and affordable to a greater number of investors, it may authorize a stock split to create more shares selling at a lower price.A 2-for-1 stock split, for example, doubles the number of outstanding shares and halves the price. If you own 100 shares of a stock selling at $50 a share, for a total value of $5,000, and the company’s directors authorize a 2-for-1 split, you would own 200 shares priced at $25, with the same total value of $5,000.Announcements of stock splits, or anticipated stock splits, often generate a great deal of interest. Buyers may simply want to take advantage of the lower share price, or they may believe that the split stock will increase in value, moving back toward its presplit price.
While 2-for-1 splits are the most common, stocks can be also be split 3-for-1, 10-for-1, or any other combination. In addition, a company can reverse the process and consolidate shares to reduce their number by authorizing a reverse stock split.
Hope, this weekly series of revealing most famous finance and investment terms will give better knowledge on all required terms. You are welcome to suggest any term that you feel, appearing here in this blog, will be helpful to readers.