| Stock splitting is one of the best things | | | | splitting is very uncommon, but it may be |
| that can happen to an investor. When a stock | | | | used if the company feels that the price per |
| splits, then the stockholders would receive | | | | share is so low that it reflects as a bad |
| twice as many shares as before. Though the | | | | investment to their investors. A very low |
| volume of the shares would almost double, the | | | | share value could also entail delisting from |
| value of each share would be reduced. | | | | the stock exchange, or it may simply be a way |
| Supposing a company splits its stock | | | | of the company to go private. |
| two-for-one, i.e. it issues one new share on | | | | |
| each existing one, then the value of each | | | | Due to the lower prices, the companies build |
| share would be reduced to half. Thus the | | | | up more liquidity by splitting their stocks. |
| number of shares would become twice as | | | | Lower prices mean more possibility of selling |
| before, but the total value would remain | | | | the stocks since the investors could place |
| unchanged. It's something like getting two | | | | them better within their budgets to buy them. |
| five-dollar bills in place of a single | | | | However, high share prices could be |
| ten-dollar bill. The value would remain the | | | | intimidating to the investors. |
| same, but the bulk of paper would become | | | | |
| twofold. | | | | One more advantage of stock splitting is that |
| | | | it is perceived as an indicator of a bullish |
| Sometimes an investor may feel a stock to be | | | | market. If the stock prices are increasing, |
| quite beyond his/her reach due to the high | | | | it might mean that the company is doing well |
| price per share of the stock. But when the | | | | financially. The rally around the stock could |
| stock splits, then the reduced value becomes | | | | last for a short time after the splitting, |
| much more affordable to the smaller | | | | but generally it pulls itself back to normal |
| investors. A $100 share could seem to be too | | | | quite fast. |
| much to invest in, but if it is split | | | | |
| two-way, then the $50 stock would seem to be | | | | But a stock splitting could also cause the |
| more affordable. This is the reason why | | | | investors to raise their hopes about the |
| companies go ahead and split their stocks. It | | | | company's potentials. Therefore the company |
| plays favorably on the psychologies of their | | | | would need to live up to the standards the |
| investors and they build on more capital. | | | | investors have come to expect, or they risk |
| | | | losing investor confidence. |
| There are a number of ways in which companies | | | | |
| split their stocks. The most common ones are | | | | In conclusion, we can say that a stock split |
| two-for-one, three-for-two and three-for-one. | | | | does nothing to improve or worsen the |
| There can also be a reverse splitting of the | | | | performance of the company. It may look like |
| stocks; i.e. reducing the number of | | | | a great deal of shares considering sheer |
| outstanding shares so that each company has | | | | bulk, but there is no change to the face |
| fewer shares than before. Such reverse | | | | value of it all. |