What happens in stock split?


Lets say you own 10 shares in a company that has a total of 100 shares outstanding. You own ten percent of that company. If the company were to decide to do a 10 for 1 stock split there would then be 1,000 shares outstanding. You would then own 100 shares. The percentage of the company wich you own is still 10% but now you own more shares which make up that same 10%.

One reason a company splits its stock is to give investors a chance to buy the shares at a lower price thus making it easier for them to invest in that company. Some people see a lower price as being more affordable.

It's sort of like taking a pie and cutting it into smaller peices. The pie is the same size only now there are more peices of it. It didn't change anything about the pie except the number of peices that are in existence.

The reverse of a stock split would be a reverse stock split. Sometimes when a company is trading below a certain dollar amount they do a reverse stock split so that it brings the price of stock up to a higher level. Once again if the company had 1,000 shares outstanding and you owned 100 of them and they did a reverse 10 for 1 split then you would go from having 100 shares to having 10. The percentage of the company you own would still be 10% but there would be fewer shares.

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