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WHAT IS A STOCK SPLIT

ByJuma Chai

Sep 1, 2020

WHAT IS A STOCK SPLIT

When a company goes public it sets an outstanding number of stock that can be traded. in a stock split the companies board of directors decide to increase the number of shares. this is usually done by increasing the current number of shares owned by the current share holders

For example, in a 2-for-1 stock split, an additional share is given for each share held by a shareholder. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split.

A stock’s price is also affected by a stock split. After a split, the stock price will be reduced (since the number of shares outstanding has increased). In the example of a 2-for-1 split, the share price will be halved. Thus, although the number of outstanding shares increases and the price of each share changes, the company’s market capitalization remains unchanged.

Juma Chai

A writer dedicated to providing the world with the best insights into Africa.

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