What does stock split mean

A stock split basically means the conversion of one stock share into 2 or more multiple stock shares. For instance, the split is like 2 for 1 or 3 for 1 wherein the company doubles the total number of shares and thus the shareholders end up having twice the number of shares, each share with 50% less worth. We have all seen the headlines about Apple and Tesla splitting their stocks. So, Let's have a look at both of them. Apple will split its stock on 4 of 1 which means that shareholders will receive an additional 3 shares with the value of each share reduced by 75% and the total value of all 4 shares is approximately equal to one share you previously had. Similarly, Tesla will be splitting its stock 5 of 1.

Since Apple is trading nearly $500 per share the price should drop to $125 after the split and Tesla stock trades above $2000 per share after the split it will drop to about $400. Although the split changes the number of shares, the value of the investor's position remains unchanged. The next question is why do companies split their stocks? The stock splits are done to reduce the company's share price. The idea is that this decrease in price will lead to an increase in investors and make the stock more valuable. For example, you might not prefer to spend $2000 for a single Tesla share but might agree to buy a split of share at $400.Apple's stock has raised by 25% while Tesla has risen above 45%. The disadvantage of splitting is that the share price is unpredictable and changes rapidly. So the conclusion we can draw is that stock split increases the number of shares and also reduces the trading price but it does not distribute more wealth amount the shareholders.