Stock split

• A method commonly used to lower the market price of a firm's common shares by increasing the number of shares belonging to each shareholder.

• Directors of a company may order a stock split to make the shares more affordable for small investors. If a shareholder holds 100 shares at the current share price of $40, and the stock splits 2 for 1 (2 new for 1 old share), the new share price would be $20, and the shareholder would then hold 200 shares. In both cases, the total value of all shares would remain at $4000. All historical per-share items (such as price per share and earnings per share) are adjusted by data providers to account for the stock split. Total sales and net income figures do not change. Stock splits by themselves do not add any value to an investor's portfolio. However, only companies that have experienced growth in their share prices will typically split their shares. See also: Reverse Split.

• Occurs when a firm issues new shares of stock but in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices. For example, if IBM trades at $100 before a 2-for-1 split, after the split it will trade at $50 and holders of the stock will have twice as many shares than they had before the split. See: split.


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 Embedded terms in definition
Common shares
Earnings per share
Net income
Reverse split
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