Wednesday, January 29, 2014

How would a stock split benefit the existing share holders?

Stock splits may eventually benefit the existing
shareholders.


When a stock splits, each share holder gets
two shares to replace each share previously held.  But the new shares are at 1/2 the
price of the old, so the cumulative value of the shares does not change.  Therefore,
there is no immediate benefit to the share holder.


Many
investors perceive a stock split as a good sign because it indicates that the company is
healthy.  If enough people believe in the company and buy shares in the company after it
splits, the existing share holders will benefit from a higher stock
price.


Companies split stocks on the expectation of a
rising market price. Other than this, there is not really any way in which share holders
benefit from a stock split.

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