Stock split is a term that is often heard in the world of stock investment. However, for those who are just starting out in investing, they may still feel unfamiliar with this term.
Therefore, this article will discuss in depth about stock split in stocks, including their definition, purpose and impact.
What is Stock Split and Reverse Stock Split ?
Stock split is an action taken by a company to increase stock liquidity by increasing the number of shares available. In a stock split, the company will divide the existing shares into several parts with a smaller nominal value.
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For example, if previously there was 1 share worth $100, after a 2:1 stock split , the number of shares on hand will be 2 shares worth $50.
On the other hand, a reverse stock split is the opposite of a stock split . In a reverse stock split , the company will combine several shares into one share with a larger nominal value.
For example, if previously there were 2 shares worth $50, after a 1:2 reverse stock split , the number of shares available will be 1 share worth $100.
The difference between a stock split and a reverse stock split is in the direction in which the shares are distributed. In a stock split , shares are divided into several parts with a smaller nominal value, whereas in a reverse stock split , several shares are combined into one share with a larger nominal value.
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Stock Split Purpose in Stocks
There are several goals that companies want to achieve when carrying out a stock split , some of which are as follows:
1. Increase the Liquidity of Stocks
By increasing the number of shares available, companies can attract more investors to buy their shares. The more investors who buy company shares, the liquidity of company shares will also increase.
2. Lowering the Stock Price
If the company’s stock price is too high, then this can be an obstacle for investors to buy the company’s shares. In this case, a stock split can help lower the company’s stock price so that it is more accessible to investors.
3. Increasing the Number of Available Shares
By increasing the number of shares available, the company can expand the company’s shareholding by the general public. In this case, a stock split can help the company to raise more capital by selling more shares.
4. Improving Corporate Image
A stock split can be a positive sign for a company because it can show that the company is growing and succeeding. In this case, a stock split can help improve the company’s image in the eyes of investors and the public.
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The Impact of a Stock Split on Stocks
Stock splits can have a significant impact on a company’s share price and stock liquidity. Some of the impacts that can occur when a company conducts a stock split are as follows:
Positive Impact on Stock Prices
In many cases, a stock split can cause an increase in stock prices because it is easier for investors to buy shares at a more affordable price.
In addition, a stock split can also show a positive sign for the company so that it can attract more investors.
Positive Impact on Number of Investors
By increasing stock liquidity and lowering share prices, stock splits can help companies to attract new investors.
The more investors who buy company shares, the greater the potential profit that can be obtained by these investors.
Negative Impact on Share Value
Even though a stock split can cause an increase in the share price, the overall value of the stock remains the same. In this case, investors will not experience a change in the value of their shares.
In addition, if a stock split is carried out too often, it can cause concern for investors and reduce their trust in the company.
Negative Impact on Stock Liquidity
Even though a stock split can increase stock liquidity, if it is done too often, it can cause an oversupply of shares that the market cannot bear. In this case, the liquidity of the company’s shares can decrease and cause the stock price to fall.
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Example of Stock Split Implementation in Stocks
Some well-known companies that have done stock splits are Apple Inc., Google (now Alphabet Inc.), and Coca-Cola. Apple Inc. have conducted stock splits 4 times since they were first listed on the stock exchange, namely in 1987, 2000, 2005 and 2014.
Google also conducted a stock split in 2014 with a ratio of 2:1. Meanwhile, Coca-Cola has conducted stock splits 11 times from 1927 to 1996.
In the examples above, a stock split can have a positive effect on the company by increasing the liquidity of the stock and lowering the price of the stock. In addition, a stock split can also show that the company is growing and succeeding.
In stock investment, stock splits can have a positive effect on companies by increasing stock liquidity and lowering stock prices.
However, keep in mind that stock splits can have a negative impact on share value and stock liquidity if done too frequently. Therefore, investors need to consider the impact of a stock split in stock investment decisions.
In this case, investors can do research on the company and look at the history of stock splits that have been carried out by the company.
In addition, investors also need to consider other factors such as company fundamentals, financial performance, and future business prospects before deciding to buy company stock.
Keep in mind that stock investment always carries risks. Therefore, you as an investor must take into account the risks that can occur before deciding to invest.
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In investing in stocks, you need to take into account factors that can affect the value of shares, such as stock splits and reverse stock splits .
Therefore, you need to always follow the development of the company and industry you are investing in and do in-depth research before deciding to invest.
Thus the article regarding information about the meaning, purpose, and impact of a stock split . Hopefully the above article is useful, yes !