Question

6. From a company’s perspective explain the significance of the following events

A) Stock Splits

b) Stock Dividends

c) Cash Dividends

Answer 1

Stock Splits: Stock split is a decision made by a board of director for increase the number of shares of organization. In this case only par value of the share will be broken and divided. Market price of the shares are also split in the same ratio of additional shares are issued.

Example: IF any shares have par value $ 10 per shares and now board of director decided to stock split 10 for 1 shares it means 10 shares are issued against 1 shares and par value of the same proportionately will reduced. Now new par value is $ 10 / 10 Shares = $ 1 Per shares.

Stocks Dividend: Stock Dividend is payment made to shareholder in forms of additional shares in place of $ in proportionate of there earlier holding. In this additional shares are issued with same par value but market price of the shares are proportionally reduced.

Example: If anyone have 1000 Shares of $ 10 Par value and board of director decided to give 1:1 stock dividend means. It means company will give him additional 1000 shares of $ 10 par value

Cash Dividend: Cash Dividend is paid to existing shareholders from the earnings of organization. It means if company have excess profit after meet of all expenses of the organization than board of director declare as cash dividend. This is given in cash form to shareholder and this will not impact to shareholder’s exiting shareholding and market price of the shares.