A  type of corporate action that increases a company's number of outstanding shares by dividing each share, which in turn diminishes its price. In the case of a 2-for-1 (2:1) stock split, for example, the company will distribute an additional share for every one outstanding share, so the total shares outstanding will double A split can also be referred to in percentage terms. Thus, a 2 for 1 (2:1) split can also be termed a stock split of 100%. A 3 for 2 split (3:2) would be a 50% split.

 

A stock split, alone, has no impact upon the net assets or market capitalization of the company. It is generally intended to increase the liquidity of the share on the market along with the perception that the shares are more affordable.

 

Alternatively, a reverse split might be implemented by a company that would like to increase the price of its shares. If a $1 stock had a reverse split of 1 for 10 (1:10), holders would have to trade in 10 of their old shares for one new one, but the stock would increase from $1 to $10 per share (again retaining the same market capitalization). A company may decide to use a reverse split in order to prevent the company from being de-listed as many stock exchanges will de-list stocks if they fall below a certain price per share.