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stock splits

Page history last edited by PBworks 12 years ago

Stock Splits

 

A company issues more shares to all current existing shareholders in % relation. This reduces the par value of the stock. The total amount of Retained earnings, however, will not change

 

For example:

1000 shares at $10, is split for

2000 shares at $ 5...this is a 2 for 1 split

4000 shares as $2.5...this is a 4 for 1 split

 

On the surface, these accounting tricks appear to be similar to stock dividends.

 

Why would a company do this: to keep the companies share price within a range that the Board of Directors thinks is appropriate. For example, if the price of a share reaches $1000, and the board thinks that more people would buy the shares at $500, then they might do a split to attract more investors.

 

Note: Warren Buffet in the past has refused to split his companies shares Berkshire-Hathaway until his share price reached $33,000 per share, and then he made restrictions that the shares had to be sold in trading blocks costing over $10,000 per trade.

 

the accounting of a stock split adds costs to the record keeping.

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