Split

Sometimes companies split their outstanding shares into more shares. If a company with 1 million shares executes a two-for-one split, the company would have 2 million shares. An investor with 100 shares before the split would hold 200 shares after the split. The investor's percentage of equity in the company remains the same, and the share price of the stock owned is one-half the price of the stock on the day prior to the split.

Split

The act of a publicly-traded company increasing the number of outstanding shares, while maintaining the same market capitalization. In other words, a company engages in a stock split in order to decrease its share price by increasing the number of shares available. Current holders of the stock are given more shares so that they maintain the same percentage of ownership in the company. For example, a company with a share price of $400 may double the number of shares so that the share price drops to $200. Companies conduct stock splits for a number of reasons; one possible reason is to keep its shares affordable. See also: Last Split, Split Ratio, Split Adjusted.

split

A proportionate increase in the number of shares of outstanding stock without a corresponding increase in assets or in funds available, as would be the case in a new stock offering or in an acquisition that uses stock as payment. Essentially, a firm splits its stock to reduce the market price and make the shares attractive to a larger pool of investors, although it is questionable if the firm's stockholders actually benefit from a split because share prices are reduced proportionately with the increase in shares outstanding. A 4-for-1 split would result in an owner of 100 shares receiving 300 additional shares, or an after-split total of 4 shares for every 1 share owned before the split. Also called split up, stock split. Compare reverse stock split.

Case Study In April 1996, directors of the Coca-Cola Company approved a 2-for-1 split, the firm's fourth stock split in a decade. The announcement stated that trading in the split shares would begin on May 13, approximately a month after the split was announced. Shares of the firm's common stock fell by $1.25 with the announcement. Shareholders of Coca-Cola could expect that the stock price would decrease by half when the securities commenced trading on a post-split basis. A stock split results in additional shares of ownership without a corresponding change in total income or assets. All per-share financial statistics decline in proportion to the size of the split. Thus, a 2-for-1 split results in twice the outstanding shares, each with half the book value and half the earnings as prior to the split. In general, stock splits create more paper but not more value for shareholders, because the market value of the stock can be expected to fall in proportion to the size of the split. A stock trading at $60 per share just prior to a 4-for-1 split should trade at approximately $15 per share following the split. Academic research investigating how or when investors can profitably invest in stock split situations offers mixed results. Some research indicates that trading stock just prior to a split may create unusual profit opportunities. One well-known study finds that unusual returns can be earned in the days before and after the announcement, but not on the date of the actual split. Other research indicates investors will earn unusually low returns by investing in stock in the year or two following a split. This variability of results means the individual investors cannot expect to earn unusual profits by purchasing a stock just prior to or following a split. By the time a split occurs, any unusual profit opportunity has already passed.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

Raja et al., (2009) studied the stock split announcements made by Information technology companies in India.

A study on investors' opinion on motives behind stock splits by companies in India

Reverse splits are unusual events in which a firm substitutes one share for multiple shares without any changes in total market capitalization of the stock.

Do reverse stock splits benefit long-term shareholders?

This will be an absorption-type company split, with SDK serving as the splitting company and TS Opto as the succeeding company.

Showa Denko K.K. (SDK) to Split and Transfer GaN LED Business

As you split you make the decision as to half split, quarter split, or simply keep splitting until you are satisfied.

Avoid splitting with these tips

If you still want to split your pills, find out if you'll save enough money to justify the potential risks and inconvenience.

Cut costs, not safety, if you split your pills: ask your pharmacist if you can split your pills without risking your health, and use the proper tools to get optimal results

This share split takes place automatically via Euroclear Sweden AB and the shareholders do not have to take any action.

Troax Group decides on record date for 3:1 share split

Al Meera Consumer Goods and Mannai Corporation will implement the stock split on June 17; Widam Food, Zad Holding and Qatari German Company for Medical Devices (June 18); Woqod and Medicare Group (June 19); and Salam International Investment and Qatar Cinema (June 20).

QSE stock split takes effect today, to attract more retail investors into market

A reverse stock split will not have any impact on the voting and other rights of stockholders, and will have no impact on the company's business operations or any of its outstanding debt.

Rite Aid stock split approved

Therefore, the market is both positive and negative about the stock split, asking questions such as: Will its plan push other expensive stocks such as LG Household and Health Care and Lotte Chilsung Beverage to do the same?

The good, the bad and Samsung stock split