When stocks split, what happens?

by cedrick.casper , in category: Stocks and Equities , a year ago

When stocks split, what happens?

Facebook Twitter LinkedIn Telegram Whatsapp

1 answer


by joelle , a year ago


When a stock splits, the number of shares outstanding increases while the price per share decreases proportionally. Essentially, the stock is divided into multiple smaller units. For example, in a 2-for-1 stock split, each existing shareholder will receive two shares for every one share they previously held, effectively doubling the number of shares they own. The total value of their investment remains the same.

The main objective of a stock split is to lower the stock price, making it more affordable and attainable for a larger number of investors. By doing so, companies aim to increase liquidity and trading volumes in their stock. A lower stock price may also generate increased interest and demand from investors who were previously deterred by the higher price.

However, a stock split does not have any direct impact on the company's underlying fundamentals or its market capitalization. The total value of the company remains the same after the split, just distributed a**** a larger number of shares.