Stock Split
A stock split increases the number of a company's shares by dividing each existing share into several, lowering the price per share proportionally.
In a stock split, a company multiplies its number of shares and divides the share price by the same factor. The total value of the company and of each shareholder's stake stays the same. It is like cutting a pizza into more slices: there are more pieces, but the same amount of pizza.
Example: in a 4-for-1 split, an investor with 10 shares worth $400 each ends up with 40 shares worth $100 each. The position is still worth $4,000.
Companies usually split their stock after a big price increase, to make each share more affordable and easier to trade. With fractional shares widely available, this matters less than it once did, but splits are still common and often seen as a sign of management's confidence.
A split does not change a company's fundamentals, market cap or valuation ratios. Per-share figures such as earnings per share and dividends per share are adjusted by the same factor, and historical price charts are usually adjusted so they remain comparable.
The reverse process, combining shares into fewer, higher-priced shares, is called a reverse stock split.