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