Stock Split

A forward split (e.g., 2:1, 3:1, 4:1) increases shares outstanding and reduces the per-share price proportionally. A company trading at $1,000 per share might do a 10:1 split, resulting in a $100 share price and 10x the shares outstanding. The rationale is primarily accessibility: lower share prices attract retail investors, increase trading liquidity, and allow inclusion in price-weighted indices like the Dow Jones. Apple (4:1 in 2020), Tesla (5:1 in 2020), and Google (20:1 in 2022) are prominent recent examples.

A reverse split (e.g., 1:10) reduces shares outstanding and increases the per-share price. Companies pursue reverse splits to meet exchange minimum price requirements (typically $1 for NYSE/NASDAQ), improve institutional perception, or reduce shareholder count. Reverse splits are generally viewed negatively because they often signal financial distress. A company trading at $0.50 per share might do a 1:10 reverse split to reach $5.00, but the market cap remains the same.

A stock split has no economic impact — market cap, enterprise value, total equity, and ownership percentages remain unchanged. However, per-share metrics (EPS, DPS, book value per share) must be adjusted proportionally. Historical financial data is retroactively restated to reflect the new share count for comparability. Options contracts are also adjusted: in a 2:1 split, each option contract covers twice as many shares at half the strike price.