stock spilt

8/3/2019 Stock Spilt

1/17

Ranjith George

Shweta Kothare

Pratamesh Kulkarni

Abin Mathew

Anand Lamani

Khubir Lamani


2/17

Stock SplitStock Split

A stock split or stock divide increases

the number of shares in a public

company. The price is adjusted such

that the before and after market

capitalization of the company remains

the same and dilution does not occur.

Stock Split


3/17

A stock split is usually done by companies that have seen their share price

increase to levels that are either too high or are beyond the price levels of

similar companies in their sector.

The primary motive is to make shares seem more affordable to small

investors even though the underlying value of the company has not changed.

A stock split can also result in a stock price increase following the decrease

immediately after the split. Since many small investors think the stock is now

more affordable and buy the stock, they end up boosting demand and drive

up prices.

Stock Split


4/17

Although there are many ratios a stock could split, the most

common splits are 2-for-1, 3-for-2, and 3-for-1.

The biggest advantages of a stock split is greater liquidity.

One of the disadvantages is that a split raises investor

expectation about the company's performance

A stock split doesn't change the value or performance of a

company.

Stock Split


5/17

Many companies do stock split when the price of share has

gone to a much higher level.

Due to high price share of a company becomes unaffordable

for many investor.

Splitting the stock brings the share price down to a more

attractive level.

A lower price change the mind of small investors, and they tend

to buy the stock thinking that it is cheap, which in reality is not

the case as the value of the share remain same after the stock

split

Why is Stock Split is Done

Stock Split


6/17

Why is Stock Split is done (contd..) Splitting a stock increases a stocks liquidity, which increases with the increase in

number of shares.

Since after stock split there are many more number of shares it imparts greater

liquidity to the stock, as there will that much more number of shares to trade.

It also leads to better price discovery of the share of the company, because of more

liquidity in the stock.

Investors prefer stocks that keep splitting as some investors incorrectly conclude that

the frequency of stock splits speaks to a company's future prospects.

Stock Split


7/17

Let's say stock A is trading at Rs.100 and has 1,00,000 shares issued,

which gives it a market capitalization of Rs.1,00,00,000 (Rs. 100 x 1,00,000

shares).

The company then decides to implement a 2-for-1 stock split. For each

share shareholders currently own, they receive one share, deposited

directly into their brokerage account.

They now have two shares for each one previously held, but the price of the

stock is split by 50%, from Rs.100 to Rs.50.

The market capitalization stays the same.

H

ow stock split is done?H

ow stock split is done?

Stock Split


8/17

Stock A Pre- Split

No. of Shares 1,00,000

Share Price(Rs.) 100

Market Capitalization 1,00,00,000

H

ow stock split is done?H

ow stock split is done? contcont..

Stock Split


9/17

How stock split is done?(cont.)

Stock A Pre- Split Post Split

2- for-1

No. of Shares 1,00,000 2,00,000

Share Price(Rs.) 100 50

Market Capitalization 1,00,00,000 1,00,00,000

3-for-1

No. of Shares 1,00,000 3,00,000

Share Price(Rs.) 100 33.33

Market Capitalization 1,00,00,000 1,00,00,000

Stock Split


10/17

All shareholders whose names appear on the company's records as on the

record date will be eligible for the additional shares.

A few weeks later, the shares will start trading ex-split on the stock

exchanges.

Who will get the additionalshares?

Stock Split


11/17

Announcement DateOld Face

Value

New Face

ValueRecord Date Ex-Split Date

22/05/1995 100 10 22/05/1995

19/05/2011 10 1 27/09/2011 26/09/2011

Tata Power Company has fixed 27 September 2011 as the record date for

the purpose of sub-division of equity shares of Rs. 10 each into equity

shares of Re 1 each.

Splits History of TATA MOTORS

Stock Split


12/17

Ex Date Company Name Face Value Before Split Face Value After Split

24/03/2011 Exelon Infrastructure 10.00 5.00

15/03/2011 National Aluminium Company 10.00 5.00

07/03/2011 Hindustan Zinc 10.00 2.00

04/03/2011 Arvind Chemicals 10.00 100.00

23/02/2011 GCV Services 10.00 5.00

10/02/2011 Aurobindo Pharma 5.00 1.00

08/02/2011 Oil & Natural Gas Corporation 10.00 5.00

27/01/2011 Amrapali Industries 10.00 5.00

20/01/2011 Rossell Tea 10.00 2.00

12/01/2011 Shopper's Stop 10.00 5.0030/12/2010 LIC Housing Finance 10.00 2.00

29/12/2010 SVC Resources 2.00 1.00

23/12/2010 Coromandel International 2.00 1.00

25/11/2010 Sun Pharmaceutical Industries 5.00 1.00


13/17

No change in Companys market share

Expensive shares can be now brought at lower prices

After initial drop down, company shares will go up

Effects of Stock SplitEffects of Stock Split

Stock Split


14/17

When reserves increase, companies may convert it into shares. Shares

increase at no cost.

Split is similar, but a bonus is a free additional share. A stock split is the

same share split into two.

In a stock split, the number of shares increases but the face value

drops. The face value never changes for a bonus shares.

Bonus v/s SplitBonus v/s Split

Stock Split


15/17

Is a process by a company of issuing to each shareholder in that company

a smaller number of new shares

They are in proportion to the shareholder's original shares that are

subsequently cancelled

Reverse Stock SplitReverse Stock Split

Stock Split


16/17

The reduction in the number of issued shares is accompanied by a

proportional increase in the share price

Danger of being delisted from its stock exchange

Used to reduce the number of shareholders

W

hy Reverse StockSplit?

Stock Split


17/17

stock spilt

Documents