A stock split is a tactical decision and action made by any publicly traded company’s board of directors that increases the number of existing shares by splitting or dividing the shares into more shares.
What Is A Stock Split?
At first glance, it is a positive thing to investors and stock shareholders since their number of shares owned will increase. But, in reality, a stock split is not a value adding event. It doesn’t detract the value either.
A stock split is just an accounting sleight of hand that increases the number of shares while maintaining the same overall value. The underlying value of a shareholder’s share is not changed at all by a stock split.
Nevertheless, a stock split is usually conducted at a time where the value of certain shares become way too high for new investors or are convincingly higher than other similar companies’ stock share prices.
This way, anyone who wishes to buy shares from a company is able to do so at lower costs since each share’s value is divided in certain multiples.
