How to Adjust for Stock Splits
A stock represents the smallest unit of ownership for a public company. As companies evolve over time, so do their ownership structures. One common corporate event is the stock split. Stock splits are used by companies that want to make their stock more attractive for potential investors. By splitting the stock, the company is able to reduce the stock price, while increasing the number of shares outstanding. Even though the total number of shares increases, the total value of the shares stays the same.
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Instructions
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Determine the number of shares and the price of the shares you own. Let's say you own 100 shares of ABC stock at a price of $1 per share.
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Determine the number of shares you own after a 2 for 1 stock split. A 2 for 1 stock split means that the company will issue you 2 shares for every one share of stock owned. For instance, this means that you own twice as many shares as before, or 200 shares of ABC company.
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Determine the value of the new shares. In order to calculate the value of 1 share in a 2 for 1 stock split, you must divide the value of the shares by 2. For instance, in this example a stock that's worth $1 prior to a stock split is now worth $.50 after a stock split.
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Calculate the new market value of your holdings after a stock split. While the number of shares increases, the value of each share decreases. Net/net, the total value of the stock portfolio does not change. For instance, 100 shares of ABC stock valued at $1 per share before the stock split equals 200 shares of stock valued at $.50 per share after the stock split. Either way, the total market value of shares owned is $100.
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