A stock split is a corporate action in which a company increases its number of outstanding shares by issuing more shares to current shareholders. It's often used to improve liquidity and affordability of shares.
A stock split is a strategic corporate action taken by a company to divide its existing shares into multiple shares. While the total value of the shares remains the same, the price per share is reduced, making them more affordable for investors. This action is often used to improve the liquidity and accessibility of the stock.
This is the most common type, where the number of shares increases, and the price per share decreases proportionately. A 2-for-1 stock split means every shareholder gets an additional share for each share held, and the stock price is halved.
In this less common type, the number of shares decreases while the price per share increases proportionately. A 1-for-2 reverse split means shareholders receive one share for every two shares held, and the stock price doubles.
Apple executed a notable 4-for-1 stock split on August 31, 2020, reducing its share price to attract more investors and increase market liquidity.
Tesla announced a 5-for-1 stock split that took effect on August 31, 2020, making its shares more accessible to retail investors.
In a stock split, if a company decides on an \(n\)-for-\(m\) split, the new number of shares held by a shareholder is:
Stock splits can lead to increased trading volume and wider investor participation, which often results in greater market capitalization. They are particularly useful for maintaining optimal stock prices, ensuring shares remain within reach for small and institutional investors alike.