Stock Splits

What are Stock Splits?

A stock split is when a company increases the number of its outstanding shares. The word “outstanding shares” means the total number of shares that are currently owned by shareholders. While the share count goes up, the company’s total market capitalisation stays the same.

For example, imagine a company announces a 1:2 stock split. This means every 1 share will become 2 shares. If the original price of the share was ₹100, then after the split, the new price will be ₹50. So, the investor’s total value stays the same at ₹100, but now it is represented by 2 shares instead of 1.

Essential Considerations for Stock Split Analysis

When analysing upcoming stock splits, investors should look at the following factors carefully:

• Split Ratio: The ratio tells you how many new shares you will receive. For example, a 1:5 split means one share becomes five shares.
• Record Date: This is the date on which the company checks its list of shareholders to decide who will get the new shares.
• Ex-Dividend Date: This is the date after which new buyers are not eligible for previously declared dividends. Investors must be aware of this to avoid missing dividend income.
• Company’s Objective: Most companies announce splits to reduce their share price, increase liquidity, or make the stock more attractive to smaller investors.
• Market Reaction: A split can lead to short-term price volatility. Sometimes prices rise due to increased demand, but in other cases, the adjustment creates temporary dips.

Findoc always recommends that investors combine this analysis with research on company fundamentals such as revenue, profit, and debt levels. You can also open free demat account online to conveniently invest in companies announcing stock splits.