Question

Find an example of a company that recently split its stock, give a brief discussion of the situation, and how the stock has fared since.

Answer 1

Stock split is needed so that it is possible for a comnpany to increase liquidity of its shares. Particularly when price of shares are so high that normal investors are unable to trade in them, stock split is announced. After a stock split there is a decrease in share price but because there is a proportionate increase in number of shares the market capitalization remains unchanged.

For example, the renowned South Korean company Samsung Electronics split its stock in 2018 January after announcing record results. It overtook Intel for becoming the world's largest chipmaker by revenue in 2017.

The stock price was close to $2,400 at which normal investors could hardly trade Split was in the ratio of 50 for 1. After the split the price of a stock would be around $45. After announcing the stock split the price of shares increased by around 8% because such a move encourages retail investors to trade in the company's shares.