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Showing posts from November 14, 2010

Stock split broadens investor base of company

Ashish Gupta, ET Bureau

A stock split is the partitioning of outstanding shares of a company into a larger number of shares, without affecting stockholders' equity or the total market value of the stock.

For example, if a company declares a 2-for-1 stock split of its stock, which has a current market value of Rs 100 per share, and 1,00,000 shares are outstanding
Before the split:

Outstanding shares: 1,00,000
Market value: Rs 100
Market capitalisation: Rs 1 crore

After the split:

Outstanding shares: 2,00,000
Market value: Rs 50
Market capitalisation: Rs 1 crore
Essentially, in the 2-for-1 stock split, the company's outstanding shares are simply doubled and the stock price is divided in half. The market capitalisation, or market value of the stock, remains the same. This is because stock splits have no impact on the value of a company's stock.

A stock split is merely an accounting transaction in which no equity is exchanged. Companies can split their stock in any number of ways…