What really happens when a stock splits 2:1?

Question

does the price split as well?
why do companies split their stocks?
are there other kinds of splits?

Answer 1

As of the date of the split, if you held shares as of the record date you will have 2 shares for every share you once held.

The price does get reduced by 1/2.

Companies split shares when their share price gets so high that they feel that trading volume or their shareholders' ability to sell those shares are adversely impacted in a way that they the Company are concerned about because it harms liquidity. In addition, its harder to grant options to employees as the share price skyrockets because you have to give fewer and fewer options to each employee (it may be the same value, but employees are demoralized when their buddy gets 10,000 options and they only get 1,000).

But this is a company by company decision. Look at Google -- its never split even though its shares are nearing 600. Or look at Berkshire Hathaway !

A split can be any number -- 2 to 1, 3 to 1. Also, struggling companies often reverse split to up the share price if they face delisting.

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Answer 2

Stock is called "shares" because you have a share of the company - a piece of the pie.

If XYZ company has a million shares outstanding, and they're worth $60 apiece, the whole company is worth $60 million. If they split their stock 2 for 1, there will be *two* million shares of stock outstanding - but the company is still worth $60 million. That makes shares worth $30 apiece.

Companies split their stock primarily for psychological reasons. If someone is interested in investing in XYZ, but he only has $3000, he might buy 100 shares after the split. If he were to buys 50 shares at $60 apiece, he's not dealing in "round lots", and the brokerage company will charge him a lot more.

Many companies see their stock price go up after a split for that reason. Some people hear the news of a stock split, and illogically think "Oooh, they must be good", and are attracted to the company.

Some companies issue stock dividends. This is another kind of split. A 7% stock dividend means that for every 100 shares you owned before, you now own 107 shares. Some investors will sell those 7 shares, which means the price of the stock goes down. I think managements sometimes use this as a means of depressing the stock price so that they themselves can buy more stock on the cheap. Managements will also declare a stock dividend so that stockholders feel their stock is earning something; paying a cash dividend would deplete the company's cash reserves.

There are all sorts of splits and reverse splits. When AT&T was initially broken up, there were a number of "baby bell" companies formed, and stockholders got stock in each one of the baby bells. In a 3:2 reverse split, someone who has 300 shares before ends up with 200 shares after. In a 3:1 or a 7:1 split, the stockholder ends up with 3 times as many or 7 times as many shares.

If, due to a split or a stock dividend, you end up with fractional shares, you usually are given the opportunity to invest more to round up, or to sell your fractional share, without paying a broker's commission.

Answer 3

Bottom line to the investor;

Splits mean nothing.

1/3 split means you get 3 shares for every share you had owned. If your total stock = $1,000.00 1 millisecond after the split you still have $1,000.00 worth of stock.... just more shares.

Reverse splits do the same. A stock on the NASDAQ drops below a dollar. By NASDAQ rules they'd be "de-isted" if the share price was under $1.00. so the may do a 1/5 split.
For every 1 share there is 5 shares. Thus the "share price" is higher... but you have fewer shares.

Don't waste you time hunting "stock splits".

Answer 4

Yes you get two shares for your one and the price does get split. Some split because they view their current price as to high and out of reach of investors for the most part. There are also reverse splits to I think but I'm not as sure.

Answer 5

A opposite split is whilst the corporation themes one share for each..say... 2 shares of inventory you very own. seeing that each physique share's fee is approx two times as lots, you're able to wreck even. even in spite of the incontrovertible fact that, seeing that this often indicators to the marketplace that a cheap is envisioned interior the destiny, the recent shares will decline somewhat in fee...leaving you with a internet loss. Why have a opposite split in any respect? some inventory exchanges require that shares be bought for no less than a minimum cost (according to probability $5/share).