A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to current shareholders. This process does not change the company's market capitalization or the overall value of shareholders' investments. Instead, it divides the existing shares into multiple ones to make the stock more affordable and attractive to investors.
For example, in a 2-for-1 stock split, each existing share is divided into two shares, effectively halving the price of each share while doubling the number of shares outstanding. If you owned one share worth $100 before the split, you would own two shares worth $50 each after the split.
Key Points:
* Accessibility: Stock splits make shares more affordable for small investors.
* Liquidity: Increased number of shares can lead to higher trading volume.
* Psychological Impact: Lower share prices can attract more investors, potentially driving demand.
Overall, stock splits are a way for companies to increase the accessibility and attractiveness of their shares without affecting the underlying value of the company.
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