Stock Split Meaning & Definition

What is stock splitting?

Samir holds 100 shares in Z corporation, each worth 500 rupees.

He just heard Z corporation had decided to split its stock. Vinod, an veteran investor, was asked to help him.

Z corporation decided to increase its share count by issuing more shares for current shareholders. Samir receives one share for each share he has. It is a one for one stock split, but the price for each share is now half the value of the original, which is 500 divided by 2 equals 250 rupees. So even though Samir now owns 100 more shares than 200, his total investment value remains the same: 250 rupees for 200 shares.

Why do companies decide to split stock?

  • To make their shares more accessible to small investors.
  • The stock is also more liquid because it's easier to buy or sell.

Remember that the company's market capitalization, which is the total value all outstanding shares, remains the same after the split.

Vinod helped Samir understand the meaning of stock split.

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