When investing in the stock market, there are a few things that you need to understand, one of them being a stock split. Keep in mind that any organization splits its stock for a variety of reasons. We have your back because we’ll let you in on everything related to a stock split, keep reading!
What is a Stock Split?
Stock splits are when the board of directors of a company issue more shares to its current shareholders without diluting any stake values. It helps increase the number of outstanding shares and decreases the value of each share. Even though the outstanding shares change, the valuation of the organization remains the same and the importance of each stake remains constant too.
Why do Companies Split Stock?
A stock split is a plan of action that different companies take to meet other goals in quite a few cases. This idea is that organizations have to create liquidity by making additional shares prices attractive and readily available for the people. This is beneficial for small investors who are looking to buy stocks. Companies throughout the years split the stocks to make their company’s share price desirable. To clear it out, the split of stocks won’t affect your overall investment value if seen theoretically. But in reality, it can result in the prices of your share going up and down. Keep that in mind!
What to Expect when Stocks Split?
Some of the most important dates that every investor needs to know when a stock split takes place
The Announcement date: By order, every company, before continuing the practice of a stock split, will announce their plans, followed by small details that every investor needs to know, such as the spill ratio, the day it’ll take place, and the dates too.
The Record Date: This date is vital when it comes to accounting, and this record date is essential because it states when the shareholders need to own the stock and be eligible to receive new shares created during the stock split. But if you buy or sell between the effective and the record date, then the right of the new shares gets transferred.
The Effective Date: This is the day and date when the new shares appear in your account, and the price of the share trade is adjusted based on the split.
Some Examples of Stock Splits:
Some of the stock splits examples that occurred recently include the following.
APPLE: A 4-for- 1 stock split was announced by APPLE a year back in August’20.
Tesla: Tesla announced a 5-for-1 stock split with its second-quarter report earnings in the year 2020.
To sum it all up, a stock split doesn’t affect the market value of any organization. It is used to change the share count or the structure of any company’s stock. The split itself does not affect the price and value of a stock, but the circumstances that surround the split can undoubtedly contribute to a negative or a positive incentive.