What is the division of shares?
shares division is an event of a publicly traded company that results in an increase in the number of shares to the market. For example, in the division of two shares for one, a company with ten million shares is outstanding to divide each share in half, so there will be 20 million shares. When shares are divided, the stock price will be reduced in proportion. Again, using an example of two per one, shares that are worth $ 50 in the US (USD) before distribution, will be worth $ 25 per share.
When the company plans to distribute shares, the action must be approved by the Board of Directors and its main shareholders, if this happens. Although the company may decide to divide its shares when its price is rising, the actual division as such does not affect the market capitalization or value of the company. The market capitalization of the company is equal to the number of existing shares, multiplied by the price of shares. When the number of shares doubles, the pricejednoho share is also reduced to half, so there is a clean zero effectto a total value.
One of the normal reasons to start the share division is to make the company's shares available for smaller investors, thus creating more demand for stocks and an increase in its price. If one share in XYZ shares is worth $ 500, an individual investor would have to pay $ 5,000 per 100 shares. This will probably be a significant part of the portfolio of one investor and can prevent it from purchasing shares, although they believe that the company is a fundamentally good investment. On the other hand, if one share of XYZ is the price for $ 25 and the foundations of the company are the same, the investment will look much more attractive for individuals whose funds are limited.
shares can in some cases signal that society is implicitly confident in its economic future. If it is generally percpocud, this will increase the market value of shares in itself. Some SPOlečnosti usually avoids shares and never had them. For example, Berkshire Hathaway is a publicly traded company whose shares of class A have sometimes sold for more than $ 100,000. This high stock price reduced shares liquidity and also achieved the intended effect, specifically attraction of long -term investors rather than short -term speculators.