stock spilt
TRANSCRIPT
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Ranjith George
Shweta Kothare
Pratamesh Kulkarni
Abin Mathew
Anand Lamani
Khubir Lamani
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Stock SplitStock Split
A stock split or stock divide increases
the number of shares in a public
company. The price is adjusted such
that the before and after market
capitalization of the company remains
the same and dilution does not occur.
Stock Split
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A stock split is usually done by companies that have seen their share price
increase to levels that are either too high or are beyond the price levels of
similar companies in their sector.
The primary motive is to make shares seem more affordable to small
investors even though the underlying value of the company has not changed.
A stock split can also result in a stock price increase following the decrease
immediately after the split. Since many small investors think the stock is now
more affordable and buy the stock, they end up boosting demand and drive
up prices.
Stock Split
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Although there are many ratios a stock could split, the most
common splits are 2-for-1, 3-for-2, and 3-for-1.
The biggest advantages of a stock split is greater liquidity.
One of the disadvantages is that a split raises investor
expectation about the company's performance
A stock split doesn't change the value or performance of a
company.
Stock Split
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Many companies do stock split when the price of share has
gone to a much higher level.
Due to high price share of a company becomes unaffordable
for many investor.
Splitting the stock brings the share price down to a more
attractive level.
A lower price change the mind of small investors, and they tend
to buy the stock thinking that it is cheap, which in reality is not
the case as the value of the share remain same after the stock
split
Why is Stock Split is Done
Stock Split
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Why is Stock Split is done (contd..) Splitting a stock increases a stocks liquidity, which increases with the increase in
number of shares.
Since after stock split there are many more number of shares it imparts greater
liquidity to the stock, as there will that much more number of shares to trade.
It also leads to better price discovery of the share of the company, because of more
liquidity in the stock.
Investors prefer stocks that keep splitting as some investors incorrectly conclude that
the frequency of stock splits speaks to a company's future prospects.
Stock Split
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Let's say stock A is trading at Rs.100 and has 1,00,000 shares issued,
which gives it a market capitalization of Rs.1,00,00,000 (Rs. 100 x 1,00,000
shares).
The company then decides to implement a 2-for-1 stock split. For each
share shareholders currently own, they receive one share, deposited
directly into their brokerage account.
They now have two shares for each one previously held, but the price of the
stock is split by 50%, from Rs.100 to Rs.50.
The market capitalization stays the same.
H
ow stock split is done?H
ow stock split is done?
Stock Split
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Stock A Pre- Split
No. of Shares 1,00,000
Share Price(Rs.) 100
Market Capitalization 1,00,00,000
H
ow stock split is done?H
ow stock split is done? contcont..
Stock Split
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How stock split is done?(cont.)
Stock A Pre- Split Post Split
2- for-1
No. of Shares 1,00,000 2,00,000
Share Price(Rs.) 100 50
Market Capitalization 1,00,00,000 1,00,00,000
3-for-1
No. of Shares 1,00,000 3,00,000
Share Price(Rs.) 100 33.33
Market Capitalization 1,00,00,000 1,00,00,000
Stock Split
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All shareholders whose names appear on the company's records as on the
record date will be eligible for the additional shares.
A few weeks later, the shares will start trading ex-split on the stock
exchanges.
Who will get the additionalshares?
Stock Split
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Announcement DateOld Face
Value
New Face
ValueRecord Date Ex-Split Date
22/05/1995 100 10 22/05/1995
19/05/2011 10 1 27/09/2011 26/09/2011
Tata Power Company has fixed 27 September 2011 as the record date for
the purpose of sub-division of equity shares of Rs. 10 each into equity
shares of Re 1 each.
Splits History of TATA MOTORS
Stock Split
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Ex Date Company Name Face Value Before Split Face Value After Split
24/03/2011 Exelon Infrastructure 10.00 5.00
15/03/2011 National Aluminium Company 10.00 5.00
07/03/2011 Hindustan Zinc 10.00 2.00
04/03/2011 Arvind Chemicals 10.00 100.00
23/02/2011 GCV Services 10.00 5.00
10/02/2011 Aurobindo Pharma 5.00 1.00
08/02/2011 Oil & Natural Gas Corporation 10.00 5.00
27/01/2011 Amrapali Industries 10.00 5.00
20/01/2011 Rossell Tea 10.00 2.00
12/01/2011 Shopper's Stop 10.00 5.0030/12/2010 LIC Housing Finance 10.00 2.00
29/12/2010 SVC Resources 2.00 1.00
23/12/2010 Coromandel International 2.00 1.00
25/11/2010 Sun Pharmaceutical Industries 5.00 1.00
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No change in Companys market share
Expensive shares can be now brought at lower prices
After initial drop down, company shares will go up
Effects of Stock SplitEffects of Stock Split
Stock Split
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When reserves increase, companies may convert it into shares. Shares
increase at no cost.
Split is similar, but a bonus is a free additional share. A stock split is the
same share split into two.
In a stock split, the number of shares increases but the face value
drops. The face value never changes for a bonus shares.
Bonus v/s SplitBonus v/s Split
Stock Split
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Is a process by a company of issuing to each shareholder in that company
a smaller number of new shares
They are in proportion to the shareholder's original shares that are
subsequently cancelled
Reverse Stock SplitReverse Stock Split
Stock Split
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The reduction in the number of issued shares is accompanied by a
proportional increase in the share price
Danger of being delisted from its stock exchange
Used to reduce the number of shareholders
W
hy Reverse StockSplit?
Stock Split
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