For example, a company has 10 (say) shares of 50 (any currency) each, with market cap of 10 * 50 = 500 or 2 for 1 stock split resulting in 20 shares, that is, 20 * 25 = 500.
My questions:
1. How does this benefit the company's share price?
2. Does a stock split really leads to increase in share prices and enhanced investor interest and trust? How?
I am looking for genuine answers only. If you have nothing serious to say, please don't answer.
2006-12-08 23:02:58 · 5 answers · asked by Anonymous in Business & Finance ➔ Investing
What you say about stock going down to 25 is not exactly right. Actualy it is the par value that goes down. If it is a 10 par stock after the split of 2 for 1 it goes down to 5 and in the short run the stock might even go back to 50 or might even remain around 50 without going down with well run companies.
Stocks are split for two reasons. One to create liquidity for the stock. Second is to encourage small investors to participate in the particular stock. Small investors can invest in stocks with small price. Also, if the stock keep going up, ultimately your stock holders will all be rich investors and distribution of wealth through stock market is hampered. So these are some reasons, ofcourse one should invest only if one has speculative income available to invest.
2006-12-09 04:42:11 · answer #1 · answered by Mathew C 5 · 1⤊ 0⤋
My answers:
1. They're able to buy the shares of a company at a lower price.
2. It does increase investor trust bacause stock splits means that more people are buying the stock everyday which keeps the stock price high, so high in fact that the company decided to split it to make the stock price less expensive. And due to investor trust, more investors buy stocks of the company.
2006-12-08 23:38:42 · answer #2 · answered by denxxchua 3 · 1⤊ 0⤋
Among other things, a split's effect to reduce the price of a individual share while not affecting the overall value of the company, making it more attractive/affordable to the investor. some people would rather buy 100 shares at $10 than 50 @ $20.
2006-12-08 23:19:54 · answer #3 · answered by alcaholicrage 2 · 1⤊ 0⤋
At the lower price, more smaller investors are able to invest in the company. Because they are able to get in at the lower price per share, there is more activity and there fore the feeding frenzy begins, causing the price to rise. The other reason for the split, is due to management wanting there to be greater diversification of owners, more stock to offer the employees in their incentive deals, and have more stock available if they should want to purchase another company thru the use of stock and/or cash.
2006-12-08 23:19:58 · answer #4 · answered by ibeherebe4 1 · 1⤊ 0⤋
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2006-12-09 17:56:23 · answer #5 · answered by Anonymous · 1⤊ 0⤋