Question

1. Walmart has a current stock price of $90, you own 1 share, if they do a 3-for-1 stock split what does that mean for you?

Answer 1

What Is a Stock Split?

A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value. The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares, respectively, for every share held earlier.

How a Stock Split Works

A stock split is a corporate action in which a company divides its existing shares into multiple shares. Basically, companies choose to split their shares so they can lower the trading price of their stock to a range deemed comfortable by most investors and increase liquidity of the shares. Human psychology being what it is, most investors are more comfortable purchasing, say, 100 shares of $10 stock as opposed to 10 shares of $100 stock. Thus, when a company's share price has risen substantially, most public firms will end up declaring a stock split at some point to reduce the price to a more popular trading price. Although the number of shares outstanding increases during a stock split, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value.

When a stock split is implemented, the price of shares adjusts automatically in the markets. A company's board of directors makes the decision to split the stock into any number of ways. For example, a stock split may be 2-for-1, 3-for-1, 5-for-1, 10-for-1, 100-for-1, etc. A 3-for-1 stock split means that for every one share held by an investor, there will now be three. In other words, the number of outstanding shares in the market will triple. On the other hand, the price per share after the 3-for-1 stock split will be reduced by dividing the price by 3. This way, the company's overall value, measured by the market capitalization, would remain the same.

In our case,

We have 1 stock of Walmart @ $90/stock.

If a company declares 3 for 1 stock split it means that for every 1 stock held we shall be receiving new 3 stock at a price which shall be less than the price at which it was purchased. However, the total capital shall remain intact I.e. each stock's market price post stock split shall be $30/stock.