What is a Stock Split?
Stock split refers to the distribution of additional shares to shareholders in accordance with existing shareholding ratios. When a stock split occurs, the company "repurchases" its outstanding shares and exchanges the original one for two or more. The split ratio can be 2: 1, 3: 1 or higher, and the face value or set value of the stock after the split will be reduced. [1]
Stock split
- Stock split refers to the distribution of additional shares to shareholders in accordance with existing shareholding ratios. When a stock split occurs, the company "repurchases" its outstanding shares and exchanges the original one for two or more. The split ratio can be 2: 1, 3: 1 or higher, and the face value or set value of the stock after the split will be reduced. [1]
- Chinese name: Stock Split English name: Stock Split
- The stock split did not bring real benefits to investors, but the number of shares held by investors increased, giving investors more points in the future
- 1. The stock split will reduce the company's stock price per stock market in a short period of time.
- Comparison of stock splits and stock dividends:
- 1.Same points of stock split and stock dividends
- (1) Increase in the number of ordinary shares (more increase in stock split)
- (2) Decline in earnings per share and price per stock market (stock splits fall more)
- (3) Shareholders' shareholding ratio remains unchanged
- (4) Total assets, total liabilities and total shareholders' equity remain unchanged
- 2. Differences between stock splits and stock dividends
- (1) The face value becomes smaller
- (2) Shareholders' equity structure remains unchanged
- (3) Not a dividend payment method
- Stock dividend
- (1) No change in face value
- (2) Changes in shareholder equity structure
- (3) Dividend payment method
- For example
- Example 1: Miss Chen owns 1,000 shares of the Boeing Company (BA). When the company announces a 2: 1 stock split, Miss Chen's original 1,000 shares will become 2,000 shares.
- 1,000 x (2/1) = 2,000
- If the original price of one share was $ 40, then the price after the split is:
- $ 40 x (1/2) = $ 20
- Basically, the total market value of stocks is the same (that is, the original 40 yuan / share * 1000 = 40,000 yuan is equal to the divided 20 yuan / share * 2000 = 40,000 yuan). Before the stock was undivided, it was worth $ 40,000 (1,000 shares x $ 40). After the split, its total value is still $ 40,000 (2,000 shares x $ 20).
- Example 2: Miss Hong owns 400 shares of Jiaosheng (JNJ) company. When Jiaosheng divides its shares into 5: 4, Miss Hong's original 400 shares will become 500 shares.
- 400 x (5/4) = 500
- If the original price of one share was $ 50, then the price after the split is:
- $ 50 x (4/5) = $ 40
- Basically, the total market value of stocks is the same. Before the stock was split, its value was $ 20,000 (400 shares x $ 50). After the split, its total value is still $ 20,000 (500 shares x $ 40).
- Example 3: Mrs. Ko owns 600 shares of Hewlett-Packard (HWP) technology company. When HP divides its shares into 1: 2, Mrs. Ko's original 600 shares will become 300 shares.
- 600 x (1/2) = 300
- If the original price of one share was $ 50, then the price after reverse division is:
- $ 50 x (2/1) = $ 100
- Basically the total number of shares is the same. Before the stock was undivided, it was worth $ 30,000 (600 shares x $ 50). After the split, its value is still $ 30,000 (300 shares x $ 100).