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Stock Split Formula:
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A stock split is a corporate action in which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases, the total dollar value of the shares remains the same because the split does not add any real value.
The calculator uses the stock split formulas:
Where:
Explanation: The total market value remains unchanged after a split. If you had 100 shares at $50 each ($5,000 total), after a 2:1 split you'll have 200 shares at $25 each (still $5,000 total).
Details: Understanding stock splits is crucial for investors to accurately track their portfolio value, calculate cost basis for tax purposes, and make informed investment decisions.
Tips: Enter the number of shares you own before the split, the split ratio (e.g., 2 for a 2:1 split), and the pre-split price per share. All values must be positive numbers.
Q1: Why do companies perform stock splits?
A: Companies split their stock to make shares more affordable to small investors, increase liquidity, and potentially make the stock more attractive.
Q2: Does a stock split change the company's market capitalization?
A: No, a stock split does not change the company's market capitalization. It only increases the number of outstanding shares while proportionally decreasing the share price.
Q3: What is a reverse stock split?
A: A reverse stock split reduces the number of shares and increases the share price proportionally. For example, in a 1:10 reverse split, 10 shares become 1 share at 10 times the price.
Q4: How does a stock split affect my cost basis?
A: Your total cost basis remains the same, but the cost per share decreases proportionally to the split ratio.
Q5: Do I need to do anything when a stock I own splits?
A: Typically, no action is required. Your broker will automatically adjust the number of shares and price per share in your account.