Stock Split
A stock split is when a company increases the number of its outstanding shares by issuing more shares to existing shareholders. The total value of the company remains the same, but the price of each individual share decreases proportionally.
Example #1
For instance, if a company performs a 2-for-1 stock split, for every share an investor owns before the split, they now have two shares, but the price of each share is halved.
Misuse
A misuse of stock splits can be seen when companies artificially inflate their share price by splitting their stocks multiple times within a short period. This can create a false sense of growth and attract uninformed investors looking for quick gains.
Benefits
Stock splits can make shares more affordable for small investors, increasing liquidity and potentially attracting more interest from the market. A lower share price may also make the stock more accessible to a wider range of investors.
Conclusion
Consumers and employees should be aware that stock splits typically do not change the overall value of their investment but can impact the share price and liquidity. It is essential to understand the reasons behind a stock split and not be misled by artificial price manipulation.