Stock Dividends, Stock Splits and Reverse Splits Essays

843 WordsNov 1, 20084 Pages
Companies use different methods for paying their stock owners their dividend payments, depending of what outcomes they are looking to achieve. If they are low in liquid cash they might pay with stock dividends or sometimes they don’t pay their dividends at all for certain periods. Some company needing to achieve their amount of share to increase or decrease might choose to do a stock split or reverse stock split, depending on what they are looking to achieve at end results. These decisions sometimes have impacts on the company’s financial statements and their per share calculations. Investors looking at the financial statements review to search for data indicating how, when and why the company has change their stocks numbers, their value…show more content…
Some companies wishing to cut their shares in half might complete a 2 for 1 stock split, or cutting it into a third might do a 3 for 1 stock split. Usually after a company does a stock split, the company’s share price will increase or decrease. The most common stock split method used is the 2 for 1 and this usually results in the stock prices being halves, resulting in owning twice the number of share for halve the original price. A stock split is commonly done by companies that feel its per-share price has risen beyond what an individual investor is willing to pay. They believe that lowering the market price will make their stocks more affordable for these investors and thereby stimulate and increase trading activity. Eventually the stock split causes an increase in the numbers of shares on the market, which lead to decreasing of Earning per Share (EPS). It is normal for EPS to decline after stock split because EPS = Net Income/ Total of shares outstanding. Since Net Income will not be impacted by the stock split, EPS has to go down due to increase in amount of shares outstanding. However, if the company has good expectations about their financial future, it might not be too concern about decline in EPS. Reverse stock split is when a company decides to change the number of outstanding shares it has by a certain number. This does not cause the price the price of the company to chance, what it changes is the

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