Stock Split Definition
When a company declares a stock split, the number of shares of that company increases, but the market cap remains the same. Existing shares split, but the underlying value remains the same. As the number of shares increases, price per share goes down.
Stock Split Description Stock split is done to infuse liquidity and to make shares affordable for various investors who could not buy the shares of that company before due to high prices.
People often confuse bonus shares with stock split. Distribution of bonus shares only changes its issued share capital whereas stock split splits the company’s authorized share capital.
Example explaining Stock Split
ABC Ltd is having 1 crore shares ,
Face value of the share is Rs 10
Market value of the share is Rs 300
Share capital of the company is : Rs 10* 1 crore shares = Rs 10 crores
Capitalisation of the company is : Rs 300 * 1 crore shares = Rs 300 crores
Like this conditions company given splitting benefit 10:1 proportionate, that means here the company face value splitted Rs 10 to Rs 1 ,then the company shares increased to 1 crore to 10 crore shares. After splitting, the company data I given below:-
ABC Ltd is having 10 crore shares,
Face value of the share is Rs 1
Market value of the share is generally godown to Rs 30
Share capital of the company is : Rs 1* 10 crore shares = Rs 10 crores
Capitalisation of the company is: Rs 30 * 10 crore shares = Rs 300 crores
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