Investors can also use the MarketBeat Stock Split Calculator to calculate what happens to their shares in a reverse stock split. In a reverse stock split, the number of outstanding shares decreases and the price per share increases.
Here’s an example. Company ABC has 8 million outstanding shares valued at $2.50 share and a market capitalization of 20 million dollars. The company issues a 1:2 split. This decreases its outstanding shares from 8 million to 4 million and increases the value of those shares to $5.00. Therefore, just as with a stock split, the market capitalization remains unchanged.
For an investor who owned 500 shares at $2.50. They would now own 250 shares at $5.00 per share. But the intrinsic value of that asset in their portfolio would still be $1,250.