Difference Between Stock Split And Reverse Stock Split Every Investor Need To Know

Introduction

Stock split refers to the act of increasing the number of existing shares by dividing into multiple shares. It decreases the price per share but overall market cap does not change. On the other hand reverse stock split is just opposite of stock split where the number of outstanding shares is reduced by merging multiple shares. It increases the price per share but total value remains the same.

Difference Between Stock Split And Reverse Stock Split

The main dissimilarities between stock split and reverse stock split can be highlighted as follows:

1. Meaning

Stock Split: It is a corporate action that increases the total number of outstanding shares by dividing them into multiple shares.

Reverse Stock Split: It is an act of decreasing the number of shares by combining or merging multiple shares.

2. Purpose

Stock Split: The main objective of stock split is to improve liquidity and make shares more affordable

Reverse Stock Split: The purpose of reverse stock split is to attract big investors and to improve company's image

3. Share Outstanding

Stock Split: Number of outstanding shares increase because existing shares are divided into multiple shares

Reverse Stock Split: In this process number of shares decrease because it combines existing shares into fewer.

4. Price Of Share

Stock Split: Share prices decreases because existing shares are divided into multiple shares

Reverse Stock Split: Shares prices are increased because the number of shares are decreased

5. Liquidity

Stock Split: It increases the liquidity because of affordable share price and improved stock market participation

Reverse Stock Split: It reduces liquidity because of higher share price lower volume of trade due to reduced number of shares

6. Investors Perception

Stock Split: Usually positive because of affordable prices

Reverse Stock Split: Usually negative because of higher share prices

7. Popular Among

Stock Split: It is common among rapidly growing companies

Reverse Stock Split: It is common among struggling companies

Comparison Between Stock Split And Reverse Stock Split

(Stock Split Vs Reverse Stock Split)

Basis	Stock Split	Reverse Stock Split
Number Of Shares	Increases	Decreases
Price Of Shares	Decreases	Increases
Liquidity	Increases	Decreases
Objective	Make shares affordable	Improve company’s image
Done By	Growing firms	Struggling firms
Investor Sentiment	Positive	Negative