stock split
• Stock split is the process of splitting shares with high face
value into shares of a lower face value.
• Face value - The face value is the fixed price of a share which
is set by promoters and bankers while forming the company.
• A stock split increases the number of shares in a public
company. The price is adjusted such that the market
capitalization of the company almost remains same.
Types of Stock splits
Forward
Reverse
FORWARD STOCK SPLITS
• A stock market strategy.
• Ratio can be 2-for-1, 3-for-1, 3-for-2 or 4-for-1.
• Eg. 100 shares x $50 = $5,000 before the split.
200 shares x $25 = $5,000 after the split
• The price of the stock
however, the number of shares.
• A company issues additional shares of stock
• shareholders own more shares.
• Liquidity of the stock
REVERSE STOCK SPLITS
•
•
•
•
A negative investment strategy - a stock merge.
A tactic to reduce the number of shareholders.
Indication that a company is in financial trouble.
Eg. 100 shares x $50 = $5,000 before the split.
50 shares x $100 = $5,000 after the split
• The price of the stock
however, the number of shares
• "D" to the end of its name- Name change and
consolidation
• Companies with low share prices uses for:
1. Gain more respectability in the market.
2. Prevent from being delisted, or even removed
from the market indexes.
Stages
•
•
•
•
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PRE-ANNOUNCEMENT
ANNOUNCEMENT
DORMANCY
PRE-SPLIT RUN
THE SPLIT
Bonus issue:
• A company gives free shares to its existing
shareholders on a pro rata basis.
• For instance, if a company declares a bonus of 2:1, the
investor gets two additional shares for each share he
holds.
• Does not mean that the company has raised additional
capital.
Stock split:
• It is the division of a share into multiple shares.
• Breaking the face value of share, the company tries to
boost the liquidity of its shares.
• investors have more shares after a stock split, their
wealth remains unaffected.
Bonus issue
Stock split
Par value of share is unchanged
The par value of share is reduce
A part of reserves is capitalized
There is no capitalized reserves
Britania industry
Rs. 2118
424
424
424
424
424
Other companies which had opted for
stock splits are…