Business and Personal Finance Dictionary

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• STOCK SPLIT
  
  When a company wants to make its shares more attractive and affordable to a greater number of investors, it may split its shares to create more shares at a lower price. A 2-for-1 stock split, for example, doubles the number of outstanding shares. So if you own 100 shares of a stock priced at $50 a share, for a total value of $5,000, and the company's directors authorize a 2-for-1 stock split, you would own 200 shares priced at $25, with the same total value of $5,000.If the stock again increases in value, and the price moves back up to its presplit price, you would own 200 shares valued at $50 a share, for a total value of $10,000. Announcements of stock splits, or anticipated stock splits, often generate a great deal of interest in a stock, since it becomes attractive to buyers who want to take advantage of the lower share price or believe that the split stock will soon increase in value. While 2-for-1 splits are the most common, stocks can be also be split 3-to-1, 10-to-1, or in any other combination. In addition, a company can reverse the process and consolidate shares to reduce the number of shares outstanding in a reverse stock split.
  
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