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What is a stock split?

Posted By Robert On Thursday, January 2nd, 2014 With 0 Comments

A stock split is an increase in a companies number of outstanding shares of stock without any change in shareholders’ equity or the aggregate market value at the time of the split. For example, one share of a $50 stock will be converted to two shares at $25 and the number of authorized shares will double when a two-for-one split is enacted.

Why does a company split their stock?

When the price of a stock becomes too costly for the average to buy, the management of that particular company may choose to split their stock. Companies also like their stock to trade close in price to other companies in their particular industries due to shareholder competitiveness.

Why do companies who split their stocks do so much better?

First of all, doing better is by no means guaranteed… While there is no particular reason for this evidence, it is probably due to investors can buy company shares easier due to cheaper prices. Another thought has suggested, a stock split is a genuine vote of confidence from a company’s management.

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