Stock Splits
What It Is
A stock split increases the number of a company’s shares by dividing existing shares into multiple new ones, while keeping the total market value unchanged.
Why It Matters
Stock splits make shares more affordable for retail investors and can improve liquidity without altering the company’s fundamentals.
How It Works
- A 2‑for‑1 split doubles the number of shares
- Share price is cut in half
- Market capitalization stays the same
- Investor ownership percentage does not change
Key Components
- Split ratio (e.g., 2‑for‑1, 3‑for‑1)
- Adjusted share price
- Increased share count
- Liquidity effects
Example
If a stock trades at $300 and undergoes a 3‑for‑1 split, the new price becomes $100 with three times as many shares.
Key Takeaways
- Splits do not change company value.
- They can increase trading activity.
- Often used when share prices rise significantly.