Stock split

Published Oct 17, 2024

A stock split is a common method used to increase retail participation in the stock market. In this process, the face value of a stock is divided into smaller denominations, which proportionally reduces the market price of the stock.

An illustration will make things clear:

Split Ratio

Old FV

No of the shares held before split

Share Price before split

Investment Value before split

New FV

No of shares held after split

Share Price after the split

Investment value after split

1:1

10

100

600

60000

5.0

200

300.0

60000

1:5

10

100

600

60000

2.0

500

120.0

60000

1:10

10

100

600

60000

1.0

1,000

60.0

60000

 

Due to a stock split, the number of shares held by the shareholder increases, but the total investment value remains unchanged, similar to a bonus issue. However, the face value of the stock is reduced. For example, if the face value of a stock is ₹10 and a 1:1 stock split is announced, the face value will be halved to ₹5.

Since the total market value of the shares remains unchanged, the price per share will decrease in the same proportion as the face value, while the number of shares will increase inversely. For instance, a 1:1 stock split will reduce the share price by half and double the number of shares outstanding.


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