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Stock Split

Intermediate

The Short Version

A stock split divides each existing share into multiple shares of proportionally lower face value — for example, splitting one share of $10 face value into two shares of $5 face value each. Like a bonus issue, it doesn't change the company's total value or any shareholder's proportional ownership; it's typically done to bring down a high per-share price and make the stock more affordable and liquid for smaller investors.

Explain It Like I'm 10

Imagine a $20 bill. A stock split is like walking up to a bank and trading that single $20 bill for two crisp $10 bills instead. You haven't gained or lost any money — you still have exactly $20 total — you just now hold it in a different, more convenient denomination. A stock split does the same thing to your shares: more of them, each worth proportionally less, adding up to the exact same total value.

Step-by-Step Example

  1. 1 You own 50 shares of a company trading at $200 each — your holding is worth $10,000.
  2. 2 The company announces a 2-for-1 stock split.
  3. 3 After the split's ex-date, your 50 shares become 100 shares.
  4. 4 The share price adjusts down to approximately $100 (from $200), reflecting the doubled share count.
  5. 5 Your total holding is still worth about $10,000 (100 × $100) — nothing about the underlying business changed, only how the same ownership is sliced up.
Textbook Example

In a 2-for-1 split, a shareholder holding 50 shares at $200 each ends up with 100 shares at approximately $100 each.

Quick Recap

  • ✓ A split changes the face value of each share; a bonus issue keeps face value the same but issues extra shares from reserves — the accounting differs even though the practical shareholder effect is similar.
  • ✓ A 'reverse split' does the opposite — combining several shares into fewer, higher-priced ones — often used to boost a very low share price back above an exchange's minimum listing threshold.
  • ✓ Total market capitalization is unchanged immediately after a split, all else equal.
  • ✓ Splits are announced with their own ex-date/record date, just like dividends and bonus issues.
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