Stock Splits happens frequently in the stock market, and many companies keep dividing their stocks, STOCK SPLIT is considered to be a very important corporate EVENT, and it also has a huge impact on the stock market and the investor, Stock Split is similar to the process of issuing, when the company announces STOCK SPLIT, it would mean an increase the number of shares in the company, but there will be no difference in the market capitalization (MARKET CAPITALIZATION) and investment value invested by the investor (INVESTMENT VALUE)
STOCK SPLIT is a certain percentage, such as 1: 1 or 1: 2 or 1: 5
The stock of FACE VALUE is divided by STOCK SPLIT, and as soon as FACE VALUE changes, the number of the company's TOTAL SHARE changes, but its total capital does not matter.
For example - if a company's stock is PRICE which is worth 100 rupees in the market and its FACE VALUE is 2 rupees, and the company has a total share of 10 lakhs, and thus the total capital of the company is - 10 lakhs X = 2 million and Market capitalizations is - 100 x 10 million = 10 million.
And the company splits the stock in the ratio of 1: 1, then the company's FACE VALUE, which is 2 rupees, will now increase the share of the company from 1 million to 20 Lakhs from 1 million in the ratio of 1: 1 (RATIO) At the same time, the company's FACE value will be reduced from Rs 2 to Rs.1,And in this way, you will see that even though the total number of shares increased from 10 lakh to 2 million, but the company's stock capital and market capitalizations, which was earlier, is still -That is, the share capital was also even before 20 lakhs, which is still = 20 lakh shares, x 2, face value = 20 lakhs
And market capitalization, which was earlier, will still remain as soon as the number of shares increases, the market value adjusts in the same proportion, the proportion of which the share is increased after a split, i.e. the stock price also AUTOMATICALLY 100 to 50 rupees Will adjust around, And the market capitalization of the company will be - 50 rupees x 20 lakh shares per share = 10 crore.
Advantages of Company and Investors from Stock Split.
The biggest advantage of the company to the stock split is that the market value and face value of the company's shares decrease both, and by which the company's shares seems to be very cheap for new investors.
The advantage of the investor's point of view is that - the old investor will now have more number of shares in the company, the benefit of which is in the form of a dividend, and he gets more profit, At the same time, new investors can easily buy company shares.
Another major benefit to the company from the stock split is that the decrease in the stock price of the company and the number of shares become higher and this increases the liquidity in the company's stock.
Liquidity: This means that the buyer gets the shares of the stock easily, and the seller who sells shares easily gets the buyer.