Welcome to CS Students' Online Club. Our MISSION: "To create a online network of budding governance professionals". Our VISION: "To be a leading network of governance professionals, providing scope for knowledge and career development".

CSoC Members Count:
38,252
Latest topics
» Past Question Papers of CS Executive / Professional / Foundation Exam Upto December 2016 Session
Wed 1 Feb 2017 - 0:11 by rchgiri

» Direct & Indirect Tax Laws Updates & Select Cases for CS Executive/Professional December 2016 Examination
Wed 11 Jan 2017 - 16:59 by rchgiri

» Financial Treasury and Forex Management>Past Questions of 60 marks>CS Professional
Thu 5 Jan 2017 - 9:45 by rchgiri

» CS EP NS P2 Cost & Management Accounting > MCQ
Sat 8 Oct 2016 - 17:57 by rchgiri

» CS Professional / Executive Programme Guideline Answers upto June 2016 Exam
Sun 28 Aug 2016 - 16:49 by rchgiri

» Tips on "How To Face An Interview & Career Planning"
Tue 23 Aug 2016 - 9:55 by rchgiri

» SEBI Act, Rules, Regulations, etc.
Mon 1 Aug 2016 - 14:48 by rchgiri

» CS Dinesh Chandra Arora, New Secretary of ICSI
Thu 21 Jul 2016 - 15:34 by Club CEO

» Online Learning of CS Executive coaching classes
Wed 11 May 2016 - 23:11 by raviesm

» Service tax Reverse Charge Mechanism.
Mon 15 Feb 2016 - 21:51 by siva004

» Service tax credit on step ladder repair
Mon 15 Feb 2016 - 21:37 by siva004

» CS Mamta Binani elected as New President of ICSI & CS Shyam Agarwal elected as New Vice-President of ICSI for 2015-16
Tue 19 Jan 2016 - 12:08 by Club CEO

» CS PP Old Syllabus: P4: CRI: Questions & Answers >> Correct or Incorrect:
Sun 13 Dec 2015 - 20:28 by rchgiri

» The Companies Act, 2013: The Rules made thereunder, Circulars & Notifications Issued by MCA
Sat 5 Dec 2015 - 12:42 by rchgiri

» New CSoC Face Portal
Thu 8 Oct 2015 - 9:01 by Club CEO

» CS Trainees / Jobs
Wed 23 Sep 2015 - 14:36 by rchgiri

» General Notice to Club Members & Well-Wishers
Tue 8 Sep 2015 - 15:36 by Club CEO

» online coaching for cs professional old syllabus
Sun 6 Sep 2015 - 13:41 by rchgiri

» Automatic Switchover To Professional (New Syllabus 2012) From December, 2016 Session
Thu 3 Sep 2015 - 15:49 by rchgiri

» Can anybody tell Main object clause for Manufacture of machinery of Polyurethanes industry.
Wed 2 Sep 2015 - 14:59 by parul5986

Top posters
rchgiri (1527)
 
Club CEO (1158)
 
praveen999 (691)
 
Soundharya (591)
 
mione (424)
 
lalitha.purohit (283)
 
j.padiya (277)
 
Preetpal Singh (219)
 
Aswathy (193)
 
SANJAY SHARMA (176)
 


You are not connected. Please login or register

View previous topic View next topic Go down  Message [Page 1 of 1]

1 Stock Splits - Concept on Thu 18 Oct 2012 - 11:51

Soundharya


CSoC Master
CSoC Master
A stock split is essentially when a company increases the number of shares. For example, if you owned 25 shares of XYZ at $15 per share, and there was a 2-1 stock split, you would then own 50 shares worth $7.50 each.

Why do companies issue splits if you still have the same amount of money??

Liquidity.

Some companies believe that their stock should be inexpensive so more people can buy it. This creates a condition where more of the company's stock is bought and sold (this is called "increased liquidity"). The problem, in theory, is that the increased activity will also leads to bigger gains and drops in the stock, making it more volatile.

Many investors believe splits are a good thing. (Their thinking goes "Well, if the stock was at $15, and now it's at $7.50, it has to go back up to where it was!) This is wrong. The stock is where it was... remember that each share now represents half of the equity in the company that it did before the split. That means that each share is entitled to half the dividend, half the earnings, and half of the assets that it once was.

A few corporations have been famous for their no-split policies. The Washington Post has traded well into the $600 per share range, and Berkshire Hathaway, which was at $8 a share in the 1960's, has traded as high as $150,000. This has created the welcome condition of a stable shareholder base.

Stock splits may seem like a gift to some investors, but there is little evidence that you benefit in any meaningful way when a company splits its stock.
Here’s what happens. Amalgamated Kumquats, which is currently priced at $80 per share, announces a 2-for-1 stock split. If you own 100 shares before the split worth $8,000, you will own 200 shares worth $8,000 after the split.

The market automatically marks down the price of the stock by the divisor of the split. The $80 per share price becomes $40 per share.

There are other splits such as 3-for-1 and 3-for-2, however 2-for-1 seems the most common.

It terms of what your holdings are worth, nothing changes. In terms of what the company is worth, nothing changes. So, why do it?

Why Split?

Perception – Some companies worry when the per share price gets too high that it will scare off some investors, especially small investors. Splitting the stock brings the per share price down to a reasonable level.
Liquidity – If a stock’s price rises into the hundreds of dollars per share, it may reduce the trading volume. Increasing the number of outstanding shares at a lower per share price aids liquidity.

Is it Good for Investors?

Some investors say a stock split is a sign that a stock is doing well and they consider it a buy signal. I would caution reading too much into a stock split by itself.
You should always look at the whole picture before making an investment decision. If you want to use stock splits as a marker for stocks to consider for further evaluation, that is a reasonable idea, but don’t stop there with your research.

If you are interested in following stock splits, MSN Money publishes a stock split calendar that lists upcoming splits.

Caution

You should watch out for one type of split as a possible danger signal and that’s the reverse split.
In a reverse split, the company reduces the number of outstanding shares and the per share price rises accordingly.

For example, a company might execute a 1-for-2 reverse stock split, which means for every two shares you own, you would now own one and the per share price doubles.

A reverse stock split is often used to prop up a stock’s price, since the price rises on the split. Often a company will do a reverse split to keep the stock price from falling below the minimum required by the stock exchange where it is listed.

Clearly, this is a sign that something is wrong if a company can’t keep its stock price above the exchange’s minimum listing price and caution is advised.

Conclusion

When you paid stockbrokers based on the number of shares you purchased, it made sense to buy a stock before it split. However, most brokers now charge a flat fee, so timing a purchase before or after a split doesn’t make much sense from that perspective.
Ultimately, you should buy a stock based on whether it meets the fundamental standards you require and not on whether it will or will not split.

https://sounds-takeonit.blogspot.com

2 Re: Stock Splits - Concept on Thu 18 Oct 2012 - 14:55

Soundharya


CSoC Master
CSoC Master
So, is it that we have to invest in stocks having higher dividend yield ratio?

https://sounds-takeonit.blogspot.com

3 Re: Stock Splits - Concept on Sun 4 Nov 2012 - 13:53

rchgiri

avatar
CSoC King
CSoC King
Nice post.

4 Re: Stock Splits - Concept on Sun 4 Nov 2012 - 21:24

Soundharya


CSoC Master
CSoC Master
Thank you..

https://sounds-takeonit.blogspot.com

Sponsored content


View previous topic View next topic Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum