Stock Split

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Stock split involves issuing of a larger number of shares in proportion of the existing shares outstanding. This means the book value and per value of the equity will change. For example, if a stock is trading at $30and it is split twice, this will double the number of outstanding shares, earnings and dividend per share will be halved and this will lower the stock price. They can be of any size like two-for-one, one-and-half-for-one, four-for-one etc. They are desirable in that they will increase in value because the share are priced lower and thus increasing demand for them. For example, if a stock which is trading at $30 is splited and trade at $15, each share holder would have more shares but each would worth less. If the stock stabilizes at $15 and above, stockholders will be better off.

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