Stock Split

This is when companies divide existing shares to lower the share price so that more investors can join the party. For example, let’s say that The Lapin Corporation of America has 10,000 shares selling at $100 a pop. The maximum capitalization is $1,000,000. If the stock split two for one, that means there are now 20,000 selling at $50 a pop. (The share price goes down, but the max capitalization stays the same.) The lower price can be more inviting to more investors. If you already owned one share of this company at $100, you would now own two shares at $50 each. A stock may split two for one, three for two, or any other combination. A reverse stock split is when a company lowers the number of its outstanding shares, which would be, for example, a one for two split. (See also: Stock, Share)

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