1. What Is Reverse Split?

A reverse split, also known as a reverse stock split or stock consolidation, is a corporate action where a company reduces the number of its outstanding shares to increase the share price proportionally without affecting the company's market capitalization.

2. How Does Reverse Split Calculation Work?

The reverse split calculation uses these formulas:

Where:

• \( \text{Old Shares} \) — Number of shares before the reverse split
• \( \text{Ratio} \) — Reverse split ratio (e.g., 1:10 means ratio = 10)
• \( \text{Old Price} \) — Price per share before the reverse split
• \( \text{New Shares} \) — Number of shares after the reverse split
• \( \text{New Price} \) — Price per share after the reverse split

Explanation: The reverse split reduces the number of shares outstanding while increasing the price per share proportionally, keeping the total market value unchanged.

3. Importance Of Reverse Split Calculation

Details: Understanding reverse split calculations is crucial for investors to accurately track their investment positions, calculate post-split share counts, and evaluate the impact on portfolio valuation after corporate actions.

4. Using The Calculator

Tips: Enter the number of old shares, the reverse split ratio, and the old price per share. All values must be positive numbers. The calculator will compute the new share count and new price per share after the reverse split.

5. Frequently Asked Questions (FAQ)

Q1: Why do companies perform reverse splits?
A: Companies typically perform reverse splits to increase their share price to meet stock exchange listing requirements, appear more attractive to institutional investors, or avoid being classified as a penny stock.

Q2: Does a reverse split affect the total value of my investment?
A: No, a reverse split does not change the total market value of your investment. While you own fewer shares, each share is worth proportionally more.

Q3: What happens to fractional shares in a reverse split?
A: Most companies cash out fractional shares rather than issuing fractional shares. Investors receive cash equivalent to the value of their fractional share.

Q4: How does a reverse split differ from a forward split?
A: A forward split increases the number of shares and decreases the price per share, while a reverse split decreases the number of shares and increases the price per share.

Q5: Are reverse splits generally viewed positively by investors?
A: Reverse splits are often viewed negatively as they can signal that a company's stock price has fallen significantly. However, they can also be strategic moves to maintain exchange listings or attract certain investors.