What is Share Split | Why Do Companies Split Share | #shares#market#Nse
Channel: Zero Trader
Date: 2022-02-10

What is Share Split | Why Do Companies Split Share | #shares#market#Nse 
share split kab hota hai
A Share split happens when a company increases the number of its shares to boost the stock's liquidity. Although the number of shares outstanding increases by a specific multiple, the total dollar value of all shares outstanding remains the same, because a Share split does not fundamentally change the company's value.
The most common split ratios are 2-for-1 or 3-for-1 (sometimes denoted as 2:1 or 3:1), which means that the stockholder will have two or three shares, respectively, after the Share split takes place for every share held beforehand.
A Share split is a corporate action in which a company issues additional shares to shareholders, increasing the total by the specified ratio based on the shares they held previously. Companies often choose to split their stock to lower its trading price to a more comfortable range for most investors, and to increase the liquidity of trading in its shares.
Most investors are more comfortable purchasing, say, 100 shares of a $10 stock as opposed to 1 share of a $1,000 stock. So when the share price has risen substantially, many public companies end up declaring a stock split to reduce it. Although the number of shares outstanding increases in a Share split, the total dollar value of the shares remains the same compared with pre-split amounts, because the Share split does not make the company more valuable.
When a Share split is announced, companies often describe it as a one time special stock dividend. This is not to be confused with a quarterly cash dividend, and simply means the company will carry out the Share split by issuing additional shares to shareholders.
A company's board of directors can choose to Share split the stock by any ratio. For example, a Share split may be 2-for-1, 3-for-1, 5-for-1, 10-for-1, 100-for-1, etc. A 3-for-1 Share split means that for every one share held by an investor, there will now be three. In other words, the number of outstanding shares in the market will triple.
On the other hand, the price per share after the 3-for-1 stock split will be reduced by dividing the old share price by 3. That's because a Share split does not alter the company's value as measured by market capitalization.
Reasons for a Share Split
Why do companies go through the hassle and expense of a stock split? For a couple of very good reasons. First, a company often decides on a split when the stock price is quite high, making it expensive for investors to acquire a standard board lot of 100 shares.
While a Share split, in theory, should have no effect on a stock's price, it often results in renewed investor interest, which can have a positive effect on the stock price.  stock splits by blue-chip companies are a bullish signal for investors.
Many of the best companies routinely see their share price return to levels at which they previously split the stock, leading to another sShare split. Walmart, for instance, split its stock 11 times on a 2-for-1 basis between the retailer's stock-market debut in October 1970 and March 1999. An investor who bought 100 shares in Walmart’s initial public offering (IPO) would have seen that stake grow to 204,800 shares over the next 30 years without any additional purchases.
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