Daffodil International University
Faculties and Departments => Business & Entrepreneurship => Business Administration => Topic started by: munna99185 on July 24, 2015, 12:32:26 PM
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A stock split is a decision by the company's board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares for every share held earlier. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split. After a split, the stock price will be reduced since the number of shares outstanding has increased. In the example of a 2-for-1 split, the share price will be halved. Thus, although the number of outstanding shares and the stock price change, the market capitalization remains constant. For example, a company with 100 shares of stock priced at $50 per share. The market capitalization is 100 × $50, or $5000. The company splits its stock 2-for-1. There are now 200 shares of stock and each shareholder holds twice as many shares. The price of each share is adjusted to $25. The market capitalization is 200 × $25 = $5000, the same as before the split.
Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University
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Thank you sir for sharing it.
To increase marketability of the shares concern company's board of directors go for such decision mainly.
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Reverse Stock Split
In finance, a reverse stock split or reverse split is a process by which shares of corporate stock are effectively merged to form a smaller number of proportionally more valuable shares. A reverse stock split is also called a stock merge.
Benefit of a reverse split is that by reducing the shares outstanding and share float, the stock becomes harder to borrow, making it difficult for short sellers to short the stock.
Occasionally, a stock will trade on the NYSE for less than $1, but if it remains at that level for too long, it can eventually be delisted, or removed, from the exchange. To avoid this situation company's board of directors chose reverse stock split as good option.