Stock Splits and Reverse Splits Practice Flashcard

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What is a stock split?

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A stock split is a corporate action in which a company divides its existing shares into multiple new shares to boost the liquidity of the shares. For example, in a 5-for-4 split, shareholders receive 5 shares for every 4 shares they own.

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What is a reverse stock split?

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A reverse stock split is a corporate action in which a company reduces the number of its outstanding shares, increasing the share price proportionally. For example, in a 1-for-5 reverse split, shareholders exchange 5 shares for 1 new share.

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How do you calculate the new number of shares after a stock split?

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To calculate the new number of shares after a stock split, multiply the original number of shares by the split ratio. For example, if you have 100 shares and a 2-for-1 split, you will have 200 shares.

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How do you calculate the new price per share after a stock split?

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To calculate the new price per share after a stock split, divide the original price per share by the split ratio. For example, if the original price is $50 and there is a 2-for-1 split, the new price will be $25.

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What is market capitalization?

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Market capitalization is the total market value of a company's outstanding shares, calculated by multiplying the current share price by the total number of outstanding shares.

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How do you calculate the price per share from market capitalization?

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To calculate the price per share from market capitalization, divide the total market capitalization by the number of outstanding shares. For example, if the market cap is $1 billion and there are 10 million shares, the price per share is $100.

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What is a fractional share?

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A fractional share is a portion of a share of stock, which can occur after a stock split when an investor does not own enough shares to receive a whole number of shares.

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How do you calculate the percent change in stock price?

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To calculate the percent change in stock price, subtract the old price from the new price, divide by the old price, and multiply by 100. For example, if the old price is $50 and the new price is $55, the percent change is ((55-50)/50)*100 = 10%.

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What happens to dividends during a stock split?

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During a stock split, dividends per share may be adjusted to reflect the new number of shares. However, the total dividend payout remains the same unless the company decides to change it.

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What is the purpose of a stock split?

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The purpose of a stock split is to make shares more affordable for investors, increase liquidity, and potentially attract more investors by lowering the share price.