what is reverse stock split?


2 Answer(s)


A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares (market capitalization) remains the same.

So first let us consider stock split. In stock split the share price is whooping high and the company wishes more liquidity in the shares thus it opts for stock split where the number of shares are split. In this scenario the market capitalization of the company remains the same but the face value is reduced in the ratio of stock split along with stock price.

In reverse stock split when the stock is quoting at low price there would be high liquidity in the stock and lot of speculation too. In order avoid this high liquidity the company issuing stocks goes for reverse stock split which ultimately increases the face value of the stock along with stock price while the market ccapitalization remains unchanged.