What is a Stock Split?

A stock split is a corporate action taken by a publicly-traded company to divide its existing shares into multiple shares. The number of shares each shareholder owns increases proportionally, although the value of a single share decreases. The purpose of a stock split is to make individual shares more affordable, and therefore accessible to a larger group of investors, while still increasing the total market cap of the company.

The Main Benefits of a Stock Split

There are several benefits of a stock split. The main benefit is that it makes shares more accessible to a wider range of investors. For example, if a stock is trading at 200 dollars per share, that may be too much money for many retail investors. However, if the company splits the stock in half, then each share is now worth 100 dollars. This makes the stock more attractive to a larger group of retail investors. Additionally, stock splits can create a positive perception of the stock. The fact that the company is taking action to make its shares more affordable often gives investors the impression that the company is growing and is a good investment.

When do Companies Execute a Stock Split?

Publicly-traded companies may decide to execute a stock split for a variety of reasons. Generally speaking, when a company’s stock is trading at a relatively high price, the company may decide to perform a stock split in order to make the stock more attractive to potential investors. Additionally, companies may consider a split if they are planning on taking new actions, such as launching a new product line or engaging in a merger or acquisition, that they believe will increase the company’s value. Finally, companies may also use a stock split as a means of corporate restructuring.

In conclusion, a stock split is an important corporate action that a publicly-traded company may take in order to make its shares more accessible to a larger group of investors. By doing so, the company can create a more positive perception of the stock, increase its market cap, and position itself for further growth.