Stock Split

Definition

A stock split is when a company increases its number of shares outstanding. Shareholders receive more shares but their total equity remains the same.

example:

If a company decides to increase its shares outstanding from 50,000 to 100,000 would be a 2 for 1 stock split. As a result, existing shareholders total shares will double.

Let's say you have 10 shares at $100/share before a 2 for 1 stock split. After the stock split is executed you would then have 20 shares at $50/share.

Why is it important

Stocks splits help enhance market appeal by reducing the market price. This allows existing shareholders to buy more shares at a discounted rate, and help attract new investors.

Financial Glossary Reference

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