Calculating Stock Splits

Mrs. Matiste

Why do corporations split stock?

Increases the number of shares outstandingDecreases the market price per share

Stock is reduced proportionately to the new number of outstanding shares

Done to allow average stock buyers to afford stockOr to increase the supply of stockAll new shares are distributed to existing stockholdersThe corporation DOES NOT make money on stock splits

Stock Splits

In order to receive the split shares, you need not own the stock on the day of the split, you must own it WHEN THE SPLIT OCCURS!

Example: On April 20, XYZ Corporation announces a 2 for 1 stock split to occur on June 1. In order to get the split shares, you only have to own the stock prior to June 1st.

Who Makes Money When A Stock Splits?

Nobody!

How IS Money Made When A Stock Splits?

When Price/Share Goes Up!

Summary of Splits

2 for 1 = 23 for 1 = 34 for 1 = 45 for 4 = 1.253 for 2 = 1.51 for 2 = .51 for 4 = .25

2 for 1 – You would end up with twice as many shares as you had owned and the price would be divided by 23 for 1 – You would end up with three times as many shares as you had owned and the price would be divided by 3Reverse Split – Decreases the number of shares and increases the market price per share (USUALLY A BAD SIGN)

Causes 1) # of shares to decrease2) Price/share to increase

½ for 1 – You would end up with one half as many shares as you had owned and the price would be multiplied by 2

Reverse Split

1 for 5 Reverses SplitHad 500 SharesSplit at $1.30 per share500 / 5 = 1001.30 x .5 = 6.50

Stock Split Problems

Fun Corp. decides on a 2 for 1 split of its stock. You own 92 shares on the day of the split. The stock splits at a price of $75.56 per share.How many shares do you own after the split?

92 shares x 2 = 184 shares

What is the new price/share after the split?$75.56 / 2 = $37.78/share

How much money did you make on the split?

NONE

Stock Split Problems

Zero Corp. decides on a 3 for 1 stock split in order to reduce the price of their stock. You happen to be the proud owner of 200 shares of Zero Corp. The stock splits at a price of $108.75.How many shares do you own after the split?

200 shares x 3 = 600 shares

What is the new price/share after the split?$108.75 / 3 = $36.25/share

How much money did you make on the split?NONE

How much money did Zero Corp. make on the split?

NONE

Stock Split Problems

XYZ Corp. decides on a 5 for 1 split of its stock. You own 35 shares on the day of the split. The stock splits at a price of $250 per share.How many shares do you own after the split?

35 shares x 5 = 175 shares

What is the new price/share after the split?$250.00 / 5 = $50.00/share

How much money did you make on the split?NONE

How much money did Zero Corp. make on the split?

NONE

Stock Split Problems

XYZ Corp. decides on a 3 for 2 split of its stock. You own 20 shares on the day of the split. The stock splits at a price of $84.00 per share.How many shares do you own after the split?

20 shares x 1.5 = 30 shares

What is the new price/share after the split?$84.00 / 1.5 = $56.00/share

How much money did you make on the split?

NONE

Stock Split Problems

Mo Corp. decides on a 5 for 4 split of its stock. You own 200 shares on the day of the split. The stock splits at a price of $98.00 per share.How many shares do you own after the split?

200 shares x 1.25 = 250 shares

What is the new price/share after the split?$98.00 / 1.25 = $78.40/share

Who made money on the split?NOBODY

Stock Split Problems

Kiddie Corp. has 1,500,000 shares of its outstanding (as in issued and not exceptional) and decides on a 3 for 1 split. The stock splits at $108.75.How many shares of Kiddie are now outstanding?

1,500,000 shares x 3 = 4,500,000 shares

What is the new price/share after the split?$108.75 / 3 = $36.25/share

How much did Kiddie make on the split?NOTHING

Stock Split Problems

Axle Corp. decides on a 3 for 2 split. You own 500 shares of Axle. It splits at a price of $82.50.How many shares of Axle do you now own?

500 shares x 1.5 = 750 shares

What is the new price/share after the split?$82.50 / 1.5 = $55.00/share

How much did Axle make on the split?NOTHING

Stock Split Problems

Nutso Corp. decides on a 2 for 1 stock split. You own 75 shares of Nutso. It splits at a price of $39.50.How many shares of Nutso do you now own?

75 shares x 2 = 150 shares

What is the new price/share after the split?$39.50 / 2 = $19.75/share

Stock Split Problems

Krumbum Corp. decides on a 3 for 2 stock split. You own 275 shares of Krumbum. It splits at a price of $108.00.How many shares of Krumbum do you now own?

275 shares x 1.5 = 412.5 shares

What is the new price/share after the split?$108.00 / 1.5 = $72.00/share

Stock Split Problems

Wacko Corp. decides on a 5 for 4 stock split. You own 50 shares of Wacko. It splits at a price of $285.50.How many shares of Wacko do you now own?

50 shares x 1.25 = 62.5 shares

What is the new price/share after the split?$285.50 / 1.25 = $228.40/share