What Is a Stock Split?
A stock split is a decision by a company's board to divide its existing shares outstanding into a larger number of shares. Each shareholder receives additional shares in proportion to what they already own, and the share price adjusts downward to match. Because the company is still worth the same amount, a stock split does not by itself change any investor's ownership percentage or the total value of their holdings.
How a Stock Split Works
Splits are described by a ratio. In a 2-for-1 split, each share becomes two shares, and the price per share is roughly halved. A 3-for-1 split triples the share count and cuts the price to about a third. The basic relationships are:
Shares after split = shares before split × split ratio
Price after split = price before split ÷ split ratio
The company's market capitalization, the total value of its equity, stays the same immediately after the split, since it is the share count multiplied by the price.
An Example
Suppose an investor owns 100 shares priced at $50, a position worth $5,000. After a 2-for-1 split, the investor holds 200 shares priced at $25, still worth $5,000. Their percentage of the company is unchanged. Brokerage records usually adjust the share count and cost basis automatically, and charting services typically adjust past prices so that older and newer figures can be compared.
Why Companies Split Stock
Companies often split their shares after the price has risen substantially. The goal is usually to keep the price within a range that many individual investors find more accessible, or to bring it in line with similar companies. Splits are generally a cosmetic change rather than a direct measure of business value, although they sometimes follow periods of strong performance.
A reverse stock split works the opposite way. It reduces the share count and raises the price, and some companies use it when their share price has fallen low. Investors may find it useful to read the company's announcement and any accompanying filings to understand the ratio and effective date.
Updated October 17, 2026. For general education only; not financial, tax or legal advice.