stock split

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.

Understanding Stock Splits.flv.flv

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

• 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

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Britania industry

Other companies which had opted for stock splits are…

CONCLUSION