What is Stock-Split, how is it beneficial for investors? - Newztezz Online


Saturday, February 25, 2023

What is Stock-Split, how is it beneficial for investors?

People investing in the stock market must have heard the term Stock Split many times. But do you know its meaning? Is there any benefit to the investors or not?

If you deal in the stock market, then you must have heard about stock-split at some point or the other. But do you have any information about it? After all, what is the name of this stock-split? Let's know here…

Understand stock-split in simple language, then when a company divides the value of any of its shares into several pieces, then it is called stock-split. In this process, the face-value of the share is divided by the company, on the basis of which the market value of the share is divided.

Stock-split happens in fixed ratio

Whenever a company does its stock-splits, they are done in a fixed ratio. Like this ratio of 1:2 or 1:10. Now if the face value of a share of a company is Rs.10, then on stock-split in 1:2 the face value of each share of the company will be Rs.5. Whereas according to 1:10, the face value of the share will remain Rs.1.

Now let us assume that the market value of the company's stock before the stock-split was Rs.1,000. Then on a stock-split in the ratio of 1:2 the value of each share would be Rs 500 and on a 1:10 split it would be Rs 100 per share.

When does stock-split happen?

Usually, a stock-split is done when a company issues more shares to its existing shareholders. If the demand for the company's stock is high in the market, then after the stock-split, the share price can increase rapidly.

How is it beneficial for investors?

Common share holders also get the benefit of stock-split. This increases the liquidity of the stock with the existing shareholders of the company, due to which they can earn a substantial profit. Even if the share price increases after the stock-split, the stake holders can still make profits. At the same time, the supply of stock also increases for new entry investors in the market.

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