{"id":4136,"date":"2021-12-18T15:36:21","date_gmt":"2021-12-18T10:06:21","guid":{"rendered":"https:\/\/www.trica.co\/equity\/blog\/?p=4136"},"modified":"2022-07-01T04:27:05","modified_gmt":"2022-07-01T04:27:05","slug":"what-are-stock-splits","status":"publish","type":"post","link":"https:\/\/trica.co\/equity\/blog\/us\/what-are-stock-splits\/","title":{"rendered":"What are Stock Splits and How Do They Work?"},"content":{"rendered":"

In times when a stock price has skyrocketed, splitting it can make it more accessible to small investors. Stock splits allow companies to divide each existing share into multiple new shares without affecting their market capitalization (total market value of all their shares) or investors’ stakes in the firm. This can be a good sign for both existing shareholders and potential investors.
\nHere is the lowdown on stock splits and their mechanics:<\/p>\n

What are Stock Splits?<\/b><\/h2>\n

A company has a definite number of shares in its share capital, each with a specific face value. Stock split refers to a decision made by the Board of Directors of a company to increase the number of shares by reducing their face value proportionately.
\nCompanies can split a stock as many times as they choose, supplemented with ratios like “2-for-1,” “3-for-1,” or even “100-for-1.” Then they report how much an individual share is now worth. Splitting a corporation’s stock does not dilute ownership interests of current shareholders. Unlike issuing new shares, a stock split does not change <\/b>an existing shareholder’s equity.
\nFor instance, after a two-for-one stock split, someone who owns 100 shares at INR 100 per share will own 200 shares at INR 50 per share. If the company pays dividends, you will also receive proportionate dividends per share. This year, IRCTC opted for a stock split<\/a> in the ratio of 1:5 where the total number of shares increased 5 times while decreasing the share price.<\/p>\n

How does Stock Split Work?<\/b><\/h3>\n

In a stock split, the shares with a face value of INR 10\u00a0 would reduce to INR 1 in a 1:10 split. That way, investors will have 10 times the initial number of shares held. Prices would also drop proportionally, but the total value of their holding remains the same.
\nHowever, the price of a stock tends to increase following a stock split in the future, since the stock appears to be cheaper now. This creates a higher demand<\/b> from small and retail investors. Furthermore, it creates a more positive attitude towards investing<\/b> in companies as the stock price, which was previously very high, becomes achievable<\/b>.<\/p>\n

Rationale Behind Stock Split<\/b><\/h3>\n

Here are some of the reasons companies go for stock split:<\/p>\n