Stock Split

A stock split occurs when a company releases additional stock in a structured manner without decreasing shareholder equity. For example, in a 2 for 1 stock split, an investor who owns 100 shares of a stock valued at $100 per share before the stock split will own 200 shares valued at $50 per share after the split. After the stock split the investor owns twice as many shares, with each share worth exactly half as much as before the stock split. While a 2 for 1 stock split is probably the most common form of stock split it is not the only form. 3 for 1 stock splits and other ratios of stock splits are also possible. In the majority of cases the purpose of a stock split is to reduce the share price of a stock in order to make the stock more affordable to a wider pool of investors.