What Is Stock Split?
A stock split is when a company issues more shares to its current shareholders by lowering the face value of each share at a specified ratio.
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A stock split is when a company issues more shares to its current shareholders by lowering the face value of each share at a specified ratio.
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#StockMarketindia #trading #StockMarket
It means that the number of outstanding shares is increased by dividing the existing shares originally issued to the present shareholders.
Though there is an increase in the number of shares, the overall market capitalization of the company and the value of each shareholder’s stake remain the same.
In other words, as a company’s stock price increases, investors are rewarded with higher returns.
But eventually, the stock may reach a price that makes it difficult for new investors to jump in, which is when the stock split comes in.
But eventually, the stock may reach a price that makes it difficult for new investors to jump in, which is when the stock split comes in.
When a company goes through a stock split, it uses a particular ratio to indicate how many new shares each outstanding share will be broken into.
Investors will receive a number of shares that’s equal to their current stake in the company but reflects the stock split.
Investors will receive a number of shares that’s equal to their current stake in the company but reflects the stock split.
Let’s take an example, Mr. A is holding 10000 Shares of Company XYZ Limited having a face value of Rs. 100 and market value Rs. 150. Now, company XYZ Limited declares the Stock Split in the ratio of 2 for 1 which means that for every 1 share, a shareholder will get 1 more share.
In this example, Mr. A is holding 10000 Shares, after the stock split his shareholding will increase to 20000 shares. Be noted that the price of the share due to stock split will go down and no. of shares will increase.
Why the Company performs the Stock Split?
✅When the BOD of the company thinks that the market price of the share is overpriced. Hence, to reduce the price of share & to increase the liquidity of shares.
✅Due to the reduction of Price, it allows more investors to buy the shares
✅When the BOD of the company thinks that the market price of the share is overpriced. Hence, to reduce the price of share & to increase the liquidity of shares.
✅Due to the reduction of Price, it allows more investors to buy the shares
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