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| What is Stock split and when can it occur |
Generally stock split will be increase in number of shares. When I say increase in number of shares, I can see a smiley in your face. But wait, the price will be adjusted such that the market capitalization of the company remains same after the split so that the dilution does not occur. Before even seeing the advantages and disadvantages of the stock split, let me elaborate when stock split will occur
A stock split is usually done by companies that have seen their share price gone too high comparing with their competitors in their sector. Other motive is, after split, share price will go down and more number of small investors will able to buy the shares and thus provide greater marketability and liquidity in the market for that stock.
A stock split is a decision by the company’s senior management .There is different versions of stock split. But here in this forum we will see only how 2for1 stock split occurs.
Let’s see an example of a stock split
For every stock an additional share will be given. i.e. if you have 50 shares and price of share is 10$, after stock split, you will end up with 100 shares and price of each share will reduce to 5$. Long story short, number of outstanding shares and the stock price change, the market capitalization remains constant.
To conclude, If this kind of 2for 1 stock split occurs in any company. That particular company is doing well and if you are planning for the investment in shares, that might be the good time to invest in that stock.
Always, before investing any stock, do your research and homework about the company and then invest
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Posted by PrabhuSubra on 2009-11-04 13:20:54 | Rating: | Views: 16
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