What is a stock split?A stock split is when corporate decides to increase the number of outstanding shares by issuing more shares to stockholders.Even though more shares are given to shareholders, the total value remains the same since the share price will also drop. Like a pizza, there might be more slices but its the same pizza.What’s the point?A couple of reasons, psychologically a lower-priced stock looks more affordable to retail investors. Additionally, many retail investors may not be able to purchase fractional shares, so a $1,000 stock may not be accessible to all investors. However, if the company has a stock split and the share price drops to $200 per share, more retail investors can invest in the company. Traditional stock splits – when a company increases the number of outstanding shares to decrease its share price. Reverse – when a company reduces its number of outstanding shares. The best way to visualize this is if you took a pizza with 24 slices and combined them, so there are only 12 slices. The total size of the pizza remains the same, but each piece is worth more. Generally only happens when the price goes so low that the company wants to artificially make it higher, not the best sign for a company.Advantages and Disadvantages
