Dow Divisor

Dow Divisor

A mathematical tool the Dow Jones Industrial Average uses to account for stock splits. Stock splits change the share price of a company without changing its underlying value, because it simply issues more shares. The DJIA, as a price-weighted index, calculates the average by adding the share prices together and dividing by the number of stocks that it indexes. If it did not have a tool like the Dow divisor, the average would become distorted every time a stock split occurs.