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