It is a sub-division
of equity shares (Stocks) that lowers the face value of the share, and increases the
number of outstanding shares.
The split ratio might
vary for different companies are 2:1, 10:1, 5:1, 10:1 and etc. The day that the split is carried out is
known as the record date. Subsequently, the shares start trading at the new
price on the stock exchanges.
Stock split keeps the
firms's total capital base intact.
Suppose the face
value of one share of firm AA is Rs. 10 and the outstanding shares that have
been issued are 1,00,000. If Company AA declares a 2:1 stock split, it means that
its shareholders will own 2 shares for every one held by them previously, but
at half the face value.
The firms's
outstanding shares will double to 2,00,000, while the face value per share will
halve to Rs. 5. So, if you owned 50 shares worth Rs. 500 before the split, you
will now have 100 shares worth Rs. 500 after the split.
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