Difference between Stock Split and Reverse Stock Split
|
Basis |
Stock Split |
Reverse Stock Split |
|---|---|---|
|
Meaning |
Increases the number of outstanding shares, reducing the price per share while maintaining the total market capitalization. |
Decreases the number of outstanding shares, consolidating multiple shares into one, and proportionally increasing the price per share. |
|
Direction of Share Quantity Change |
Increases the number of shares outstanding. |
Decreases the number of shares outstanding. |
|
Price Per Share Change |
Decreases the price per share. |
Increases the price per share. |
|
Ratio Determination |
Involves a forward split ratio (e.g., 2-for-1, 3-for-1). |
Involves a consolidation ratio (e.g., 1-for-5, 1-for-10). |
|
Purpose |
Often used to improve liquidity, accessibility, and investor perception. |
Typically used to increase the stock price to meet exchange listing requirements or to convey financial strength. |
|
Market Signal |
Generally seen as a positive signal indicating confidence in future growth. |
Often viewed as a negative signal, suggesting financial distress or a need to boost the stock price artificially. |
|
Shareholder Impact |
Shareholders receive additional shares, maintaining their proportional ownership. |
Shareholders receive fewer shares, but their proportional ownership remains the same. |
Difference between Stock Split and Reverse Stock Split
The basic differences between a stock split and a reverse stock split lie in their direction and effect on share quantity and price. A stock split increases the number of outstanding shares while decreasing the price per share, achieved by dividing existing shares into multiples. Conversely, a reverse stock split decreases the number of outstanding shares by consolidating multiple shares into one, resulting in a proportionally higher price per share.