What Happens To My Shares In A Stock Split?
BlackBull Markets | Nov 25, 2021 06:01PM ET
To begin, what is a stock split?
A stock split is a simple mechanism that a listed company can employ to increase the number of issued shares while keeping its market capitalization/valuation the same.
There are a couple of reasons a company may elect to perform a stock split, the chief among them is to increase the liquidity (or accessibility/tradability) of its stock.
What happens to my shares in a stock split?/h5
The most popular stock split ratios are 2:1, 3:2 and 3:1. By way of example, if a hypothetical company were to perform a 3-for-1 stock split, its shareholders would be issued an additional two shares for every share they owned before the split. In conjunction with the split, the value of each share would be devalued to 1/3 of its pre-split value. Effectively, the total value of three shares after the stock split should be worth the same value as one share before the stock split.
h5 /h5 h5 What is a reverse stock split?/h5A reverse stock split is when a company reduces the number of shares available, while keeping its market capitalization/valuation the same. A company cannot simply remove shares as easily as it can issue new shares. Therefore, with a reverse stock split, a company is forced to revoke all existing shares and issue new shares, proportional to the reduction that the company is pursuing.
A primary reason a company performs a reverse stock split is to avoid being delisted from its stock exchange, which may have set minimum share-price conditions on its listees.
h5 What are some famous stock splits and reverse stock splits?/h5General Electric (NYSE:GE) performed a 1:8 reverse stock split in July 2021. Before the reverse stock split, GE shares were teetering around U.S. $12. The reverse stock split meant that GE shares began trading above US$100 per share, a threshold not crossed for a very long time.
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