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Finance: What Happens When your Stock Splits? 56 Views
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Description:
If you go to an arcade and want to play coin-operated games, you will often exchange $1 bills for (4) quarters at a time. This is the equivalent of a 1 for 4 stock split. The net value is the same, but you have more small units instead of a single larger one. The advantage for a stock is that its lower price represents an easier entry level for new investors to get involved, since buying shares of a stock at 25 is easier for an initial portfolio allocation than at 100. A forward split is usually an indication that a company is growing and attracting more investors. Conversely, a reverse split would be like getting a dollar for your 4 quarters. Reasons for a reverse split could be too much stock outstanding to move the stock price, flushing out naked short sellers, or a post reverse merger stock overhang cleanup.
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Transcript
- 00:00
Finance allah shmoop shmoop what happens when your stock splits
- 00:07
Well for one thing it's not is embarrassing Is when
- 00:10
your pants split Trust me thie Answer Mohr pie pieces
- 00:15
that's What happens when your stock splits That's it well
- 00:17
here's the pie before the split This pie represents the
Full Transcript
- 00:21
dessert company pastry holic synonymous And if you look carefully
- 00:25
with a big fat zoom in microscope while you khun
- 00:29
see ten million slices of this pie that's ten million
- 00:34
shares currently on the market trading that comprise the value
- 00:37
of this entire company Well the stock has done great
- 00:40
It has had a big fat rise in zooming to
- 00:43
one hundred dollars a share valuing the company at a
- 00:46
billion dollars How no that's not magic With the stock
- 00:49
market paying one hundred dollars a share for pastry hollis
- 00:52
anonymous multiplies that hundred dollars by the ten million shares
- 00:56
to get the market capitalization or market value of the
- 01:00
company Yep a cool bill in this case Well the
- 01:03
company wants to split the stock for four for one
- 01:06
to make it easier for less wealthy people toe by
- 01:09
at least one hundred shares And if people buy fewer
- 01:12
than a hundred shares While there's usually much more commission
- 01:15
they pay for not buying what's called around lot so
- 01:18
the company splits the stock for for one and now
- 01:22
instead of ten million tiny slices they have forty million
- 01:26
teeny tiny slices and no that's not by magic For
- 01:30
everyone who had one share before Now they have four
- 01:33
The stock price should fall on the day of the
- 01:36
split from one hundred bucks to twenty five bucks a
- 01:38
share and that's it pastry Hollis anonymous now has forty
- 01:41
million shares outstanding with wall street paying twenty five bucks
- 01:45
a share for them and voila the value of the
- 01:47
company or its market capitalization has not changed it's still
- 01:52
that same cool bill we started out with on ly
- 01:55
Now that cool bill is chopped up into smaller pieces
- 01:59
Wow counting has never made us so hungry for a
- 02:02
nice piece apply Is this gluten free that maybe tax 00:02:05.7 --> [endTime] free You got any tax free pies
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