how a stock split works
a stock split is a corporate action in which a company issues additional shares to shareholders increasing the total by the specified ratio based on the shares they held previously companies often choose to split their stock to lower its trading price to a more comfortable range for most investors and to increase the liquidity of trading in its shares most investors are more comfortable purchasing say 100 shares of a 10 stock as opposed to 1 share of a 1 000 stock so when the share price has risen substantially many public companies end up declaring a stock split to reduce it although the number of shares outstanding increases in a stock split the total dollar value of the shares remains the same compared with pre split amounts because the split does not make the company more valuable a company s board of directors can choose to split the stock by any ratio for example a stock split may be 2 for 1 3 for 1 5 for 1 10 for 1 100 for 1 etc a 3 for 1 stock split means that for every one share held by an investor there will now be three in other words the number of outstanding shares in the market will triple on the other hand the price per share after the 3 for 1 stock split will be reduced by dividing the old share price by 3 that s because a stock split does not alter the company s value as measured by market capitalization calculating market capitalizationmarket capitalization is calculated by multiplying the total number of shares outstanding by the price per share for example assume xyz corp has 20 million shares outstanding and the shares are trading at 100 its market cap will be 20 million shares x 100 2 billion let s say the company s board of directors decides to split the stock 2 for 1 right after the split takes effect the number of shares outstanding would double to 40 million while the share price would be halved to 50 although both the number of shares outstanding and the market price have changed the company s market cap remains unchanged at 40 million shares x 50 2 billion on may 22 2024 nvidia nvda announced a 10 for 1 forward stock split of the company s issued common stock as of the close of the market on thursday june 6 2024 record holders of common stock will receive nine additional shares for each nvda share they already own 