{"id":5393,"date":"2020-08-19T14:09:37","date_gmt":"2020-08-19T11:09:37","guid":{"rendered":"https:\/\/roboforex.com\/blog\/?p=5393"},"modified":"2023-06-29T17:35:54","modified_gmt":"2023-06-29T14:35:54","slug":"apple-and-tesla-will-have-stock-splits","status":"publish","type":"post","link":"https:\/\/roboforex.com\/blog\/2020\/08\/19\/apple-and-tesla-will-have-stock-splits\/","title":{"rendered":"Apple and Tesla Will Have Stock Splits"},"content":{"rendered":"\n

It’s become known recently that two world-famous companies Apple<\/a> and Tesla<\/a> are planning their stock split<\/a>. As a result, this move will provide a lot of investors with the opportunity to but these company’s shares at lower prices.<\/p>\n\n\n\n

<\/span>What is a stock split?<\/span><\/h2>\n\n\n\n

A stock split (or a share dilution) is an increase in the number of outstanding shares due to a proportional split of every initial share.<\/p>\n\n\n\n

The most important aspect here is that in the case of a stock split companies do not issue new shares, hence splits do not lead to a dilution of shareholders at a company. In the case of a split, capitalization and percentage shares of shareholders remain intact.<\/p>\n\n\n\n

<\/span>The purpose of stock splits<\/span><\/h2>\n\n\n\n

Before making an IPO, a company defines what number of shares will be outstanding. After an IPO, an issuer gets financial recourses from selling shares on a stock exchange and starts investing them in development. As time goes by, a company expands, its profit increases along with the number of investors, who would like to buy its shares.<\/p>\n\n\n\n

The number of outstanding shares remains unchanged and the investors who bought shares are in no hurry to sell them, thus creating a deficit of supply on the market and leading to a rise in the share price. The more actively a company develops, the faster its share price grows, and if no actions are taken, the price may reach several tens or even hundreds of thousands of dollars.<\/p>\n\n\n\n

<\/span>Berkshire Hathaway share price<\/span><\/h2>\n\n\n\n

An excellent example of this might be shares of Berkshire Hathaway<\/a> (NYSE<\/a>: BRK.A). Warren Buffett intentionally didn’t split his company’s stock. As a result, one share costs more than $310,000 while the average share trading volume doesn’t exceed 500 a day. In comparison, the average share trading volume of Apple in more than 36 million.<\/p>\n\n\n\n

\"Share<\/a>
Share price chart of Berkshire Hathaway (NYSE: BRK.A)<\/figcaption><\/figure>\n\n\n\n

When shares cost that much, the number of investors who can buy them is extremely limited.<\/p>\n\n\n\n

<\/span>What is the negative side of too expensive shares?<\/span><\/h2>\n\n\n\n

When developing and entering new markets, companies always require additional financing, which may be received by issuing and selling its shares on a stock exchange. In the case of a high price, the number of investors that can afford to buy shares is reducing. As a result, a company can’t get a targeted amount of funds, while the excess of shares on the market will lead to a decrease in their price and (quite rarely) profit-taking by investors who bought shares earlier, thus creating additional pressure on the stock.<\/p>\n\n\n\n

<\/span>How stocks split in practice<\/span><\/h2>\n\n\n\n

For example, you have 100 shares of Apple (NASDAQ: AAPL)<\/a>. The cost of each of them is 200 USD, so the total amount of your investment is 20,000 USD.<\/p>\n\n\n\n

The company announces a 2-for-1 stock split, which means that an additional share is given for each share in a portfolio held by a shareholder. In this case, your shares will be doubled and your portfolio will now contain 200 shares with their price half that equal to 100 USD. However, after all these activities, the total amount of your investment will remain at 20,000 USD.<\/p>\n\n\n\n

<\/span>Apple stock split<\/span><\/h2>\n\n\n\n
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