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Stock Split Formula:
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A stock split is a corporate action where a company divides its existing shares into multiple shares to boost the stock's liquidity. Although the number of shares outstanding increases, the total dollar value of all shares remains the same because the split doesn't add any real value.
The calculator uses the stock split formula:
Where:
Explanation: The formula calculates the new price per share after a stock split by dividing the original price by the split ratio.
Details: Calculating the adjusted price is essential for investors to understand the true value of their holdings after a split and to make accurate comparisons of stock prices over time.
Tips: Enter the original stock price in USD and the split factor ratio. Both values must be positive numbers greater than zero.
Q1: What is a common split ratio?
A: Common split ratios include 2:1, 3:1, or 3:2, where the first number represents the new number of shares for each old share.
Q2: Does a stock split change the company's market capitalization?
A: No, a stock split does not change the company's market capitalization. It only increases the number of shares while reducing the price per share proportionally.
Q3: Why do companies perform stock splits?
A: Companies typically perform stock splits to make shares more affordable to small investors and to increase liquidity in the stock.
Q4: How does a reverse stock split work?
A: A reverse split reduces the number of shares and increases the share price proportionally, using the same formula but with a split factor less than 1.
Q5: Are stock splits good for investors?
A: Stock splits are generally viewed positively as they often indicate that a company's share price has increased significantly, though they don't fundamentally change the value of an investment.