Examples of Stock Splits

A stock split increases the number of shares outstanding, thereby reducing the price per share such that the before and after market capitalization will remain the same.

Example 1 (2-for-1 Stock Split):
CPU Company has 10,000 shares of stock priced at $20 per share. The market capitalization is 10,000 * $20 = $200,000.
Later, the company decided to execute a 2-for-1 stock split. After the split, there are 20,000 shares of stock and each shareholder holds twice as many shares. The new price of each share will be decreased to $10. The market capitalization is 20,000 * $10 = $200,000 (the same as before the split).

Example 2 (1-for-2 Reverse Stock Split):
MSC Company has 200,000 shares of stock priced at $10 each. The market capitalization is 200,000 * $10 = $2,000,000.
Later, the company decided to execute a 1-for-2 reverse stock split. This means that now there are 100,000 shares of stock (instead of 200,000) and each shareholder owns only one share for every two shares he/she possesses. The price per share will double to $20 (instead of $10), and therefore the market capitalization will remain the same (100,000 * $20 = $2,000,000).

* Next: Examples of Rights Issue

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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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