easier for existing shareholders to sell their stakes in the open markets). Once a stock split has occurred, the range of investors that can potentially purchase stocks in the company and become shareholders expands, resulting in greater liquidity (i.e. the market capitalization (or equity value) remains unchanged post-split.īut there are certain side considerations such as the increased liquidity within the markets that could benefit existing shareholders. Stock splits theoretically have a neutral impact on a company’s overall valuation, despite the decline in share price, i.e. More Accessible Stock to Broader Range of Investors.The effects of a stock split are summarized below: However, the market value of the company’s equity and the value attributable to each existing shareholder remains unchanged. Stock Split ImpactĪfter a stock split, the number of shares in circulation increases, and the share price of each individual share declines. If an individual investor has $ 10k in capital to invest and purchased a single Class A share of Alphabet, the portfolio is already 26.8% concentrated in one share, meaning that the portfolio’s performance is largely dictated by Alphabet’s performance. More specifically, an abnormally high share price can prevent retail investors from diversifying their portfolios.īy allocating a greater percentage of their capital towards shares in one company, an individual investor takes on more risk, which is why the average everyday investor is unlikely to purchase even one high-priced share.įor instance, the share price of Alphabet (NASDAQ: GOOGL) as of the latest closing date () was roughly $2,695 per share. Stock splits cause a company’s share price to become more affordable to retail investors, thereby broadening the investor base that could own equity. the shares are no longer accessible to individual investors. Stock splits are most often declared by companies with share prices determined as being too high, i.e. The rationale behind stock splits is that individual shares are currently priced so high that potential shareholders are deterred from investing. Stock Split Calculator – Excel Template.Stock Split Ratio & Split-Adjusted Price Formulas.

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