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Finance: What Happens When your Stock Splits? 62 Views

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Description:

If you go to an arcade and want to play coin-operated games, you will often exchange $1 bills for (4) quarters at a time. This is the equivalent of a 1 for 4 stock split. The net value is the same, but you have more small units instead of a single larger one. The advantage for a stock is that its lower price represents an easier entry level for new investors to get involved, since buying shares of a stock at 25 is easier for an initial portfolio allocation than at 100. A forward split is usually an indication that a company is growing and attracting more investors. Conversely, a reverse split would be like getting a dollar for your 4 quarters. Reasons for a reverse split could be too much stock outstanding to move the stock price, flushing out naked short sellers, or a post reverse merger stock overhang cleanup.

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Transcript

00:00
Finance allah shmoop shmoop what happens when your stock splits
00:07
Well for one thing it's not is embarrassing Is when
00:10
your pants split Trust me thie Answer Mohr pie pieces
00:15
that's What happens when your stock splits That's it well
00:17
here's the pie before the split This pie represents the

00:21
dessert company pastry holic synonymous And if you look carefully
00:25
with a big fat zoom in microscope while you khun
00:29
see ten million slices of this pie that's ten million
00:34
shares currently on the market trading that comprise the value
00:37
of this entire company Well the stock has done great
00:40
It has had a big fat rise in zooming to
00:43
one hundred dollars a share valuing the company at a
00:46
billion dollars How no that's not magic With the stock
00:49
market paying one hundred dollars a share for pastry hollis
00:52
anonymous multiplies that hundred dollars by the ten million shares
00:56
to get the market capitalization or market value of the
01:00
company Yep a cool bill in this case Well the
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company wants to split the stock for four for one
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to make it easier for less wealthy people toe by
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at least one hundred shares And if people buy fewer
01:12
than a hundred shares While there's usually much more commission
01:15
they pay for not buying what's called around lot so
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the company splits the stock for for one and now
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instead of ten million tiny slices they have forty million
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teeny tiny slices and no that's not by magic For
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everyone who had one share before Now they have four
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The stock price should fall on the day of the
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split from one hundred bucks to twenty five bucks a
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share and that's it pastry Hollis anonymous now has forty
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million shares outstanding with wall street paying twenty five bucks
01:45
a share for them and voila the value of the
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company or its market capitalization has not changed it's still
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that same cool bill we started out with on ly
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Now that cool bill is chopped up into smaller pieces
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Wow counting has never made us so hungry for a
02:02
nice piece apply Is this gluten free that maybe tax 00:02:05.7 --> [endTime] free You got any tax free pies
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