What is a Reverse Stock Split?

A reverse stock split is when a company reduces the number of its outstanding shares while proportionally increasing the price of each share. Although you end up owning fewer shares, the total value of your investment remains the same immediately after the reverse split. For example, suppose you own 100 shares of a company trading at $2 per share. Your investment is worth $200. If the company completes a 1-for-10 reverse stock split, you will own 10 shares worth approximately $20 each. Your investment is still worth about $200. Companies typically perform reverse stock splits when their share price has fallen significantly. One common reason is to raise the stock price high enough to meet the minimum listing requirements of a major stock exchange. A higher share price can also improve the company's public image, although it does not change the company's actual financial value. Unlike a traditional stock split, which increases the number of shares, a reverse stock split decreases the number of shares. Neither type of split changes the overall value of the company or the value of your investment at the time the split takes effect.


FYI: This article is for educational purposes only and should not be considered financial advice. Always do your own research before making investment decisions.







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