Understanding The Reasons For Stock Splits
A stock split is a corporate action where the company divides the existing outstanding shares in order to boost the liquidity of shares. The prices of the shares adjust automatically in the stock market when the company implements the action. The equity capital of the company and its net assets remain the same. For instance, a board of directors for a company decides to do a 3:1 stock split. In this scenario, if the value per share stood at $90, the new value per share would become $30, while the net worth of the stock would remain the same. For every one share there would now be three.
Liquidity
The primary reason why companies decide for a stock spit is to increase the liquidity of the shares in stock the market. More liquidity makes the buying and selling of the shares easier for the consumer. The split is in the form of either a ratio or a percentage according to the convenience of shareholders. Liquidity is an important factor. It is the degree of flexibility with which investors can purchase or sell the shares or securities without making an impact on the prices of that share. It is done for the betterment of the investors.
Reverse Stock Split
Reverse stock split is an action that increases the par value of a share, while the total number of the company
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