Month End Glossary

Stock Split

A stock split is a corporate action in which a company issues additional shares to its existing shareholders, proportionally increasing the number of outstanding shares while reducing each share's price.

A stock split occurs when a company decides to divide its existing shares into multiple shares to boost the stock's liquidity. For instance, in a 2-for-1 stock split, shareholders receive two shares for every share they own, reducing the price per share by half while keeping the overall market value of the shares unchanged. Companies often perform stock splits to make their shares more affordable to individual investors, especially when the share price has risen substantially.

Stock splits do not change the intrinsic value of the company; they merely adjust the share structure. For example, if an investor holds 10 shares of a company valued at $100 each and the company conducts a 2-for-1 stock split, the investor will hold 20 shares valued at $50 each post-split. The total investment value remains $1,000. This keeps the market capitalization of the company intact.

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