Understanding Stock Splits
when corporations decide to sell stocks to the public, they also decide to sell a certain number of shares. the shares that are released and sold are called outstanding shares. they rise and fall in value based on the investing public's demand for them. sometimes the price of a company's outstanding shares grow so much that it can ? average investors. a high price may also make the stock harder to sell. in this case, a company might decide to take action to reduce their cost per share. if the company pumps out more shares, this can ? the value of existing shareholder's shares. however, there is another option, splitting existing shares. think of a share like a pie. when a stock is split, each share is divided into two or more equal slices. investors who already own shares on the company will have more shares after the split, but the total value of all the shares will be the same as they were before the split. this process can also happen in reserve, when the stock price sinks too low, a reverse split combines shares to turn multiple shares into a single share with a higher share price. it is important for investors to remember that because ? stock splits only change the proportion of the company's worth that those shares represent.