Question

What is the purpose of a stock dividend or stock split? How does a stock split...

  • What is the purpose of a stock dividend or stock split?
  • How does a stock split impact a company's financial statements?
  • How does a stock split impact a stockholders' individual investment?
  • What is a reverse stock split?  
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Answer #1

Purpose of both stock dividend and stock split is to increase the number of shares so that shareholders can get maximum return and shares become affordable because number of shares increases.

Stock split does not result in any inflow of funds. Hence, there is no impact on financial statements.

Stock split impact the individual investment by increasing the number of shares. This increase in shares will result in greater trading liquidity. Also, in the long run, they will be benefitted by increase in their wealth

Under reverse stock split, shares are merged to form smaller number of shares outstanding. For example, company can issue 1 share against 3 shares.

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