What is a Stock Split?

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What is a Stock Split? Blog Image

Overview:

Sigachi Industries (SIGACHI) recently initiated its long-anticipated 10:1 stock split.

About Stock Split:

  • A stock split happens when a company increases the number of its shares to boost the stock's liquidity.
  • It is a corporate action in which a company issues additional shares to shareholdersincreasing the total by the specified ratio based on the shares they held previously.
  • Although the number of shares outstanding increases, there is no change to the company's total market capitalization as the price of each share will split as well.
  • The most common split ratios are 2-for-1 or 3-for-1 (sometimes denoted as 2:1 or 3:1).  This means that for every share held before the split, each stockholder will have two or three shares, respectively, after the split.
  • The number of shares increases, but the price per share goes down in proportion.
  • Why is a stock split done?
    • It 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.
    • It is sometimes aimed at helping a company meet the minimum requirements to remain listed on an exchange. This is because some stock indexes are price-weighted, meaning a company wishing to join the index would need to have, among other criteria, a price that falls within a certain band. 
  • What is a Reverse Stock Split?
    • It is the opposite transaction, in which a company lowers, instead of increasing, the number of shares outstandingraising the share price accordingly.
    • The total value of your shares would remain consistent.

 


Q1) What is Market Capitalization?

Market cap—or market capitalization—refers to the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. 

Source: Sigachi Industries announces 10:1 stock split, shares begin trading ex-split