The stock split is when the company divides its existing shares into multiple new shares. It’s not an issuance of the equity or raise of the finance. Instead, it’s about dividing one share into various shares. It does not lead to changes/modifications in the ownership of the existing shareholders.
It helps to boost the liquidity as the company’s price per share decreases, and a more extensive base of the investor can purchase the shares. However, a stock split does not add any real value to the financing structure of the business.
On the other hand, stock dilution impacts the holding of the existing shareholders. Dilution leads to a decrease in the proportion of the current shareholder’s investments. The most common ratio of the split is 2:1 or 3:1) which means each of the shares will be divided into two and three shares, respectively.
Most investors are comfortable purchasing shares with lower market value because they perceive lower risk with the investment. Total outstanding shares increase in the books of accounts, but their dollar value remains the same as no equity fluctuates with this stock split.
Apple stock split
Apple has a trend of splitting the stock in history. The recent stock split was done on August 14, 2020. The split ratio was 4-1, which means the holder of the one Apple stock converted into four stocks. The trading price of the share before the split was $499.23 that was divided among four shares, and it stood at $124.81.
The split was done to improve the stock’s liquidity and increase the trading capacity of the shares as a price of $124.81 can be afforded by a large number of investors than the price of $499.23. Hence, there is a higher expectation for the increasing trend.
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